Land ownership now comes in two forms
Prior to the enactment of this legislation, it was possible to create other forms of ownership, such as “fee tail estate”, where lands could only pass to descendants of the original holder; or “fee farm grant”, which gave the benefits of ownership, but imposed an annual rent.
These latter ownership models gave the person disposing of land the ability to control the ownership and indeed the future ownership of land — which ironically is becoming an issue of ever increasing importance, given the increase in marital breakdowns, particularly over recent decades.
The 2011 CSO census showed that 88,000 persons were divorced, and a further 116,000 were separated.
In addition to the two options of leasehold and freehold, it is of course possible to own land solely or jointly. In some cases, parents may now wish to consider transferring part ownership of the farm.
Separately, on many farms, it is often the case that the original land acquired by the farmer is owned solely, and new parcels of land purchased are owned jointly.
Similarly, many couples decide to put their assets into joint ownership during their lifetimes.
This can have negative tax consequences for future disposals — where reliefs such as retirement relief from capital gains tax or business relief for inheritance may not be available.
For these reasons, it is often worthwhile considering the tax consequences, before putting assets into joint names.
Two forms of joint owner-ship exist — these being “joint tenancy” and “tenants in common”.
The names used for these two types of joint property ownership can create confusion; for simplicity, it would be better understood if these were described as joint ownership or ownership in common, given that neither version involves tenants, under the normal meaning of the word.
The difference between the two forms is very important from a tax perspective. With “joint tenancy”, where one owner dies, the other owner will become automatically entitled to the deceased person’s share. This can be the case regardless of whether the person who dies had made a will.
In some instances, this may be the intentions of the parties involved. For instance, a married couple with young children may wish that, in the event of a death of one spouse, the assets would pass automatically to the surviving spouse, without the need to extract probate, and without any need to consider the Succession Act, which would give certain rights of succession to children.
However, owning assets under joint tenancy can cause significant problems. Take, for example, two brothers who own land jointly. Each brother is married. In the event of the death of one sibling, the land held in joint tenancy will pass automatically to the other surviving sibling. In this case, one surviving sibling obtains the entire farm, yet the deceased sibling’s spouse is left in a particular-ly vulnerable position, neither in possession of land or income from the land.
With capital gains tax and gift/inheritance tax both standing at 33%, horrendous tax consequences can also arise in cases of joint tenancy where, as a result of a death, unnecessary transfers occur before property is transferred to the ultimate beneficiary.
For example, two siblings own a rental property as joint tenants. On the death of one sibling, the property passes to the remaining individual, and inheritance tax of 33% applies on any value above €30,150. On the eventual transfer of the property to a nephew, another round of inheritance tax applies at 33%. With multiple rounds of inheritance tax, the value of an estate can be quickly and significantly reduced.
Such are the issues with joint tenancy. The alternative method of joint owner-ship is “tenants in common“, which can offer a more flexible approach, because each person can decide to whom they wish to leave their share of the property in their will. If property is currently owned under joint tenancy, it is possible to sever this and instead convert to tenants in common. The splitting of a joint tenancy into a tenancy in common does however have capital gains tax consequences, but in the case of farming, it may be possible to claim reliefs.
