The ‘keep the farm in the family’ plan.
I wanted to keep the farm
in the family but my family
didn’t want to be farmers.
John, 65
Dairy Farmer
For me the farm isn’t an asset – it’s a way of life.
This land has been in the family for generations, and I’d
like to keep it that way and keep it farmed.
But with none of my children wanting to follow in my
footsteps, that’s not as straightforward as I imagined.
The ‘keep the farm in the family’ plan.
I wanted to keep the farm
in the family but my family
didn’t want to be farmers.
John, 65
Dairy Farmer
For me the farm isn’t an asset – it’s a way of life.
This land has been in the family for generations, and I’d
like to keep it that way and keep it farmed.
But with none of my children wanting to follow in my
footsteps, that’s not as straightforward as I imagined.
A Taxing Time
Luckily, I had a neighbour who wanted to lease and
farm the land when I retired. I discussed it with the kids,
and they felt it was a good idea.
It meant they could eventually own the farm without
having to be farmers.
However, I was worried that in the process of inheriting
the farm they’d also inherit a huge tax bill.
All I could hear was the words
of my father ringing in my ears.
‘Keep the land in the family,
God’s not making any more of it’.
A Taxing Time
Luckily, I had a neighbour who wanted to lease and
farm the land when I retired. I discussed it with the kids,
and they felt it was a good idea.
It meant they could eventually own the farm without
having to be farmers.
However, I was worried that in the process of inheriting
the farm they’d also inherit a huge tax bill.
All I could hear was the words
of my father ringing in my ears.
‘Keep the land in the family,
God’s not making any more of it’.
A VET IN THE KNOW
Funny enough it was the vet who put me onto Goodbody – apparently they advised a number of farmers in the area.
A VET IN THE KNOW
Funny enough it was the vet who put me onto Goodbody – apparently they advised a number of farmers in the area.
The Goodbody Advice
Make the most of tax reliefs.
Tax law relating to inheritance and the transfer of agricultural land is a complex area, so much depends on the landowner’s personal situation.
In John and his wife Kathleen’s case they could benefit from significant tax reliefs if they wanted to transfer their farm to their three children during their lifetime.
CGT Retirement Relief
Available to those who dispose of some or
all qualifying assets, which includes farm assets.
Despite the name, the owner doesn’t have to
retire in order to qualify.
Agricultural Relief
Reduces the gift and inheritance value of farms by
90% to minimise the CAT (gift and inheritance tax)
liability so family farms and agricultural
land are kept in production.
The Goodbody Advice
Make the most of tax reliefs.
Tax law relating to inheritance and the transfer of agricultural land is a complex area, so much depends on the landowner’s personal situation.
In John and his wife Kathleen’s case they could benefit from significant tax reliefs if they wanted to transfer their farm to their three children during their lifetime.
Mum & Dad couldn’t hide their disappointment when we said farming wasn’t for us.
But they must have forgiven us as they‘ve helped us all get on the property ladder.
Mum & Dad couldn’t hide their disappointment when we said farming wasn’t for us.
But they must have forgiven us as they‘ve helped us all get on the property ladder.
Qualifying for tax relief
As John was 65, he could claim CGT Retirement Relief on the entire €4 million land transfer. Relief would have been capped at €3 million if he’d have waited another year.
However, retirement relief didn’t apply to Kathleen as she hadn’t worked the land.
But she could avoid a CGT liability by transferring her share of the land to John before he
passed it on to their children.
An Overview of The Criteria
CGT Retirement Relief
The relief is designed to facilitate the early transfer of business assets, including farms, especially to family members.
In the case of family succession, CGT can be reduced to zero. The qualifying assets for this relief must have been owned for a minimum of 10 years, and the disposal must be made by an individual aged 55 or over. They must also have been used for the purpose of the trade or for farming for the minimum period of 10 years.
For individuals like John, who are aged between 55-65, there is no financial cap on the relief when passing on assets to children. However, from the age of 66 relief is capped at a value of €3 million.
If the child who received the qualifying assets disposes of them within 6 years the relief is clawed back.
Agricultural Relief
Firstly, at the date of the gift to the children, at least 80% of each child’s assets must constitute agricultural property.
Secondly, the children would need to qualify as active or qualified farmers by meeting specific tests of farming the land or leasing it to an active or qualified farmer. As John had agreed to lease the land to a qualified farmer, the children also meet this test.
In John’s case, all his children were in the early stages of their careers, so the gifting of the farm would make up more than 80% of their personal assets.
Stamp duty would still be payable by the children on the transfer of the land but would be payable at a reduced rate of 1%.
If the children dispose of the land within 6 years, Agricultural Relief and the reduction in stamp duty would be clawed back.
Qualifying for tax relief
As John was 65, he could claim CGT Retirement Relief on the entire €4 million land transfer. Relief would have been capped at €3 million if he’d have waited another year.
However, retirement relief didn’t apply to Kathleen as she hadn’t worked the land.
But she could avoid a CGT liability by transferring her share of the land to John before he
passed it on to their children.
An Overview of The Criteria
The Children’s CAT Liability
Capital Acquisitions Tax (CAT)
Whilst John could transfer the land without any CGT liability,
the children were not so lucky.
Previous gifts for house deposits had eaten into their personal CAT tax-free threshold,
so even after Agricultural Relief was applied some CAT was payable.
CAT CALCULATION PER CHILD
CAT tax-free threshold
€335,000
€335,000
Previous gift for house purchase
€300,000
€300,000
Remaining CAT tax-free allowance
€35,000
€35,000
One third share of the farm
*(after Agricultural Relief of 90%)
€133,333
€133,333
Amount liabale for CAT @ 33%
€95,333
€95,333
CAT liability on transfer
€31,460
€31,460
The Children’s CAT Liability
Capital Acquisitions Tax (CAT)
Whilst John could transfer the land without any CGT liability,
the children were not so lucky.
Previous gifts for house deposits had eaten into their personal CAT tax-free threshold,
so even after Agricultural Relief was applied some CAT was payable.
CAT CALCULATION PER CHILD
CAT tax-free threshold
€335,000
€335,000
Previous gift for house purchase
€300,000
€300,000
Remaining CAT tax-free allowance
€35,000
€35,000
One third share of the farm
*(after Agricultural Relief of 90%)
€133,333
€133,333
Amount liabale for CAT @ 33%
€95,333
€95,333
CAT liability on transfer
€31,460
€31,460
A Final Thought From John
I’d say to all my fellow farmers, the earlier you wake up to gift and inheritance tax, the better.
Thanks to Goodbody the farm is now secure. All I need now is a grandchild who loves farming.
A Final Thought From John
I’d say to all my fellow farmers, the earlier you wake up to gift and inheritance tax, the better.
Thanks to Goodbody the farm is now secure. All I need now is a grandchild who loves farming.
What’s your plan?
Please contact us if you think your life could be enriched by a financial plan.
