Kieran Coughlan: Seven weeks to check you can benefit from ‘retirement relief’

The next few weeks represent that last chance for retired farmers who currently let their land by conacre to switch to leasing, in order to retain capital gains tax benefits.

A special tax relief, commonly called “retirement relief”, allows farmers and other business persons to dispose of their trading assets after the age of 55, without capital gains tax.

The retirement relief rules apply to disposals to family, and to third parties, albeit different relief limits apply, depending on the category of disposal.

Without retirement relief, the transfer of assets to children, or indeed the disposal of capital assets to third parties, would potentially be subject to capital gains tax at 33%.

Two further conditions which must be satisfied in order to avail of the relief are that the assets disposed of must have been owned by the individual for the ten years prior to the disposal, and must have used in the person’s business up to the date of disposal.

On a practical basis, this means, for example, a publican selling their pub and pub licence can potentially do so on a tax-free basis, where they sell the pub as a going concern, subject to relevant limits.

On the contrary, a publican who retires and leases out their premises for a few years prior to disposal, or who ceases to trade for a few years prior to selling off the licence, cannot in either circumstance avail of retirement relief, and capital gains tax would be payable on the gain, upon disposal.

Uniquely for farmers, retirement relief is extended in a number of circumstances where the farmer lets out their land.

The extension of retirement relief to land which is let is a relatively new phenomenon, having been introduced first in 2002.

The scope of the concession has been extended in a number of ways, and over a variety of budgets since then, firstly by extending the time-period during which a disposal can occur while still availing of the relief, but also by extending the relief to disposals to third parties.

Following Budget 2013, a farmer who leased out their land had a window of up to 15 years after ceasing to farm their land to dispose of that land to their children or to a third party while still availing of retirement relief.

This was further extended to a 25-year timeframe by Budget 2014.

Under the 2013 legislation, for third-party disposals, the land must have been leased for consecutive periods of not less than five years.

Following the agri- taxation review of 2013, a recommendation was made to further extend retirement relief to farmers who were effectively locked out from these arrangements, in situations where the farmer had mistakenly or otherwise let their land by conacre.

Budget 2014 duly corrected this anomaly, and granted an extension to land owners who had let their land by conacre, to now potentially avail of retirement relief, if they either started leasing their land under formal lease agreements, or alternatively disposed of their land.

Remember that the recommendation of the agri-taxation review was framed against a backdrop of encouraging land mobility and tenure stability — hence the extension to land owners who avail of conacre arrangements was restricted to December 31, 2016.

As such, a certain cohort of former farmer land-owners, intending to sell or transfer their land to a third party, who had owned and farmed their land for at least ten years prior to first letting, and who had involved themselves after ceasing to farm in conacre arrangements, now have just seven weeks remaining to either sell their land, or start leasing out their land under lease agreements of at least five years, at a time commencing on or before December 31, 2016, in order to retain the capacity to sell or transfer their land with the benefits of retirement relief.

Where, in these circumstances, conacre arrangements continue past December 31, 2016, such land cannot benefit from retirement relief.

These particular rules are focused at disposals and transfers to third parties, including for example transfers to extended family members, or the sale of sites.

The push to get your affairs in order prior to December 31, 2016, is not hugely relevant in the case of land owners intending to transfer to children or persons who are deemed equivalent to children under the legislation.

Given the complexity of the rules surrounding retirement relief, it is always worthwhile checking if your intended arrangements will meet the relevant criteria.

Professional tax advice should be obtained relevant to each individual’s circumstances.