Farming has left an indelible mark on Ireland’s heritage, and continues to be central to its modern economy. The country boasts some 4.5 million hectares of land suitable for agriculture, plus 750,000 hectares dedicated to forestry. There are 135,000 active farms and agricultural businesses, with the agri-food sector contributing 4.3% of the country’s GDP and 9% of exports.
Like any modern sector, financial management is as important to agricultural businesses today as expert stewardship of the land. It is an industry with its own unique financial characteristics, with agribusinesses typically having a high proportion of fixed assets, and often leaning towards capital-intensive business models. This comes with its own challenges and complexities, as well as opportunities.
The heavy tie-in agribusinesses have to high value fixed assets – land, commercial and domestic buildings, farm machinery and equipment – is reflected in Ireland’s fiscal policy and the dedicated Capital Gains Tax (CGT) relief options available.
CGT is normally charged at 33% of any gains or profits made from the disposal of assets in Ireland. But in recognition of the role the disposal of property plays in the agricultural economy, Revenue offers three separate options for reducing or waiving this liability.
Farm Restructuring Relief
Farm Restructuring Relief is available when agricultural or farmland is sold, purchased or otherwise exchanged for the purpose of reducing the distance between holdings, and therefore making operations more efficient. This will usually involve two or more transactions involving land, which must occur within 24 months of one another.
There is full relief on any transactions where the purchase price of land exceeds the sale price of that previously disposed of. If a profit is made on the disposal and subsequent purchase of more adjacent land, partial relief is still available. You may also qualify for relief on stamp duty.
To qualify for this relief, you must have a Farm Restructuring Certificate from Teagasc. The relief is claimed via a Farm Restructuring Relief Claim form, and any relief awarded must be included in your CGT calculations in subsequent tax returns.
Agricultural Relief
Agricultural Relief is available when qualifying agricultural property is gifted or bequeathed as part of an inheritance. It works by reducing the taxable value of the property by 90%.
For the purposes of the relief, agricultural property is defined as land, pasture, or woodland, situated not just in Ireland but anywhere in the EU and UK as well. It covers farm buildings and dwellings located on the land, crops, trees, livestock and any other saleable assets associated with the land, farm machinery and equipment, and if applicable, any milk quotas and entitlements to EU farm payments that come with the land.
To qualify, the value of the gifted or bequeathed property designated as agricultural property must make up at least 80% of the total value of the inheritance or gift.
Retirement Relief
Similar to Agricultural Relief, Retirement Relief waives or lowers CGT liabilities when farm holdings are passed from one person to another. But where Agricultural Relief is tied to property, Retirement Relief is specific to a business being passed on. The disposal must happen within a family, and the person disposing of the business must be at least 55 – although they do not have to retire, despite the name of the relief.
If an agricultural business is passed down to a child, you can claim full relief on CGT if you are aged between 55 and 65. If you are aged 66 or over, relief is capped at €3 million. This relief is subject to clawback if the child disposes of the asset within six years of receiving it.
If an agricultural business is handed over to another family member, you can get relief on disposals up to a market value of €750,000 if you are aged 65 or under, or €500,000 if you are over 65.
Speak to an expert
With our specialised accounting services tailored for the agricultural industry, the Xeinadin is committed to helping farmers, agribusinesses, and agricultural organisations thrive financially. Contact our team today to find out more about tax planning, business advisory, accounting and auditing, and more.
