The new relief on capital gains tax (CGT) in agricultural land transactions announced in Budget 2013 can save a farmer €56,447 — where he sells 10 hectares away from the yard and buys 12 hectares beside the yard.
This example is given in the update by Oak Park-based Financial Specialist James McDonnell on restructuring relief in the current Today’s Farm Teagasc magazine.
In the example, a farmer sells 10 hectares situated five miles away, for €260,000 with disposal costs of €6,000, so the net disposal value is €254,000.
He buys 12 hectares for €270,000 across the road from his yard.
Both parcels are qualifying land for the purposes of the new restructuring relief (it must be agricultural land in an entire field or group of fields, the value of non-agricultural land — such as forest, peat land, or dwellings — cannot qualify for the relief).
The land he sold was acquired in 1982 for a cost (including expenses) of €30,500.
This acquisition cost is adjusted upwards for inflation in the example calculaton, to €81,679.
So his capital gain is €172,321, and tax due, at 33% of the gain, is €56,447 (after deducting the annual personal CGT-free allowance of €1,270).
However, there is no gains tax liability in this case — because he qualifies for the new relief on CGT for agricultural land transactions which lead to efficient farm restructuring, defined as reducing the distance between parcels comprising a farm, thereby reducing farm fragmentation and improving the operation and viability of the consolidated farm.
The parcels of land can include land that has been leased for at least two years with at least five years to run. However, the sale of an existing farm and the replacement of it by the purchase of another farm is not seen as farm restructuring for the purposes of the relief.
And land sales under compulsory purchase orders will not qualify.
The sale and purchase transactions for qualifying land must be within 24 months of each other and must also be within the scheme period (January 1, 2013 to December 31, 2015).
Where all restructuring conditions for CGT relief are met, and the farmer applies to Teagasc and supplies supporting documentation, Teagasc will issue a farm restructuring certificate which qualifies the farmer for the CGT relief.
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