Last year’s Budget introduced a special relief in respect of capital gains tax on the purchase and sale, or exchange, of agricultural land.
The new tax relief wipes out underlying capital gain on the sale of land, where the proceeds from the sale are reinvested in the purchase of other “qualifying” land, or in cases where land is exchanged by an owner for other land.
The relief may be most appropriate where a farmer has an outside block of land sold to enable him to buy a block of land closer to his main farming base.
Due to European Union state-aid rules, this new relief was subject to approval and ministerial order.
As a result, the official launch of this relief has been delayed until now.
To be eligible to claim the capital gains tax relief, the sale and purchase of qualifying land must occur within 24 months of each other, with the initial sale or purchase of qualifying land taking place in the period from Jan 1, 2013, to Dec 2015.
Where existing land is sold before new land is purchased, then capital gains tax is initially payable, on the land sold, in the normal way, with this subsequently refunded by Revenue once the next phase, i.e. the purchase, is complete and the transaction is approved by Teagasc and Revenue.
The relief can work in instances where owned land is sold before new land is purchased, or visa versa.
Where a farmer sells land, or exchanges land, and the farmer doesn’t reinvest the full proceeds, or receives land in an exchange of a lesser value, the farmer will only qualify for a pro-rata relief from capital gains tax.
To qualify for the relief, the farmer must get the overall transaction, both sale and purchase or exchange, approved by Teagasc.
If all criteria are satisfied, Teagasc will issue a Farm Restructuring Certificate, which is needed before Revenue will grant the tax relief.
The purpose of the relief is to reduce farm fragmentation and improve the operational efficiency of farms, where farm parcels become consolidated or closer to each other — this is one of the conditions that must be adhered to for the overall approval of the transaction by Teagasc.
Additionally, the relief only applies to persons engaged substantially full time in farming.
The relief is not designed to cater for the total disposals of all land owned by a farmer with new land being bought — i.e. the relief is designed to cater for the restructuring of existing farms.
The Farm Restructuring Certificate issued by Teagasc identifies the lands sold and purchased, and an approved transaction certifies that Teagasc is satisfied, on the basis of information available at the time of certification, that the sale and purchase of lands complies with the conditions of the scheme.
The relief from capital gains tax will be clawed back where the new land is disposed of within five years.
To receive approval from Teagasc, it is necessary to apply using a form FR1.
For any farmer who may potentially avail of this scheme, it is important to check in advance that all criteria can be satisfied as the tax savings afforded by the relief are considerable.
Previously, a relief from stamp duty, called farm consolidation relief, existed, but given that this was withdrawn a number of years ago, parcels acquired under this new relief from capital gains tax are, in most instances, likely to be subject to stamp duty.
As always, each individual’s circumstances should be looked at for the best advice.
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