Kieran Coughlan: Capital gains tax amnesty opportunity for about 40,000 renters
As part of the Agri-taxation review concluded in 2013, a number of recommendations were made to encourage land owners to enter into long-term leasing arrangements rather than the more traditional conacre-type arrangements.
Participating in the review, the then president of Macra, Kieran O’Dowd, summed up: “Realistically, farmers are not going to be in a position to buy land, and allowing them to lease land for terms of between five and 15 years will allow them to borrow from the banks to make affordable capital investments.”
Effectively, leases offered farmers an opportunity to scale up their businesses with a degree of certainty.
In 2014, there were only 6,250 leases availing of or partially availing of the current income tax free exemption limits, compared to nearly 40,000 rental arrangements on a conacre or yearly letting basis.
The Finance Act 2014 increased the income tax exemption limits for new leases entered into after January 1, 2015, as follows:
* €40,000 where all the qualifying leases are for 15 years or more;
* €30,000 where all the qualifying leases are for 10 but fewer than 15 years;
* €22,500 where all the qualifying leases are for seven but fewer than 10 years;
* And €18,000 where all the qualifying leases are for five or six years.
Coupled with the sizeable increases in the exemption limits, the capital gains tax legislation offered land owners who currently avail of conacre arrangements an opportunity to either sell or transfer their land prior to December 31, 2016, to avail of potential relief from capital gains tax, or switch over to leasing, to put themselves into a position that they can subsequently sell or transfer their land and avail of the potential reliefs from capital gains tax.
In both cases, relevant criteria must be satisfied, such as minimum lease periods of five years at a time.
As a starting point, the rule changes will benefit land owners who had both owned and farmed their holdings for a minimum period of 10 years prior to engaging in letting/leasing, and the amnesty will not offer any capital gains tax benefits to land owners who neither farmed their holdings nor owned their holdings for the requisite time frames.
The new rules are most especially of benefit on disposals to a person other than a child, as an alternate capital gains tax relief already caters for disposals to children.
Without the benefit of these rules, a land owner who had previously owned and farmed their holding for the requisite period, and subsequently let their land by way of conacre, who then goes on to sell their land to a third party, or a family member such as a brother, sister, nephew or niece, or who sells part of their farm (such as a site) would potentially face capital gains tax on the disposal in a similar fashion to calculating capital gains on any other investment property.
By contrast, a farmer who continued to both own and farm their lands up to the date of sale or transfer could benefit from relief from capital gains tax on up to €750,000 in the case where the farmer is under 66 at the time of the disposal, or €500,000 in the case where the farmer is aged over 66.
These new rules put the landowner who previously farmed the land into a similar position for capital gains tax, meaning that land owners have an opportunity to lease their land without falling foul of the capital gains tax rules on a subsequent disposal.
A separate relief applies in the case of land owners who had entered the early retirement scheme, and who met relevant criteria in relation to that relief.
Importantly, the new rules put a 25-year cap from first letting within which the land owner must dispose of their property, where the land owner wishes to avail of the capital gains tax reliefs.
Given the complexity of these new rules, land owners who had previously farmed their lands would be well advised to establish professional advice as to whether there is major capital gains tax benefits in bringing forward a disposal of their property within the year 2016, or switching from conacre to leasing arrangements in 2016.
