Land Transfers and Stamp Duty Relief - THE END IS NIGH!

Stamp Duty on land has come down considerably in recent years from a high of 9% to the current rate of 2%. In addition to the flat rate, there is a 50% reduction of the Stamp Duty payable where the parties are related, such as Father and Son/Mother and Daughter. Accordingly, if the Stamp Duty on a particular transaction was say 2,000.00 euro, if the transaction was a transfer between related parties the Stamp Duty payable would in fact be 1,000.00 euro. This is a tax relief called Consanguinity Relief. Consanguinity Relief i.e. the Special Stamp Duty relief between related parties was ended in respect of dwelling-houses on the 31st December 2012 but it continues to be available in respect of transfers of land. However, this relief is due to end on 31st December 2014. Accordingly, to avail of the 50 percent reduction in Stamp Duty in respect of transfers of land between related parties, such transfers should be completed on or before 31st December 2014.

Of course there is an additional relief called Young Trained Farmers Relief which gives a Stamp Duty exemption for certain young farmers under 35 with appropriate agricultural qualifications.

Everybody who has a Farm, land or a business should have a Will. This is the most basic of estate planning (i.e. planning for what happens to your assets when you die). However, in cases where there are significant valuable assets, be it land or a business, it is essential that more sophisticated Estate Planning is considered. Essentially what I mean by Estate Planning is the orderly and tax efficient transfer of your assets on your death. Most people will have already given consideration to this, bearing in mind the old saying: “there are only two certainties in life, taxes and death”.

However, often times there is more scope for Tax Planning and the orderly transfer of assets, like land and business’s, when you are alive. In most instances you are better placed to organise your affairs and deal with your assets in a tax efficient manner while you are alive.

Up to 2009 a parent could transfer to a child land or a business valued at €542,544 without having to trigger Gift Tax. In recent years the threshold has been reduced to €225,000 in an attempt to increase the amount of Tax that can be collected. It is still capped at €225,000.

The recession and the collapse in asset values presents an opportunity for good tax planning on transfer of farm or business assets. This is so when combined with the fact that the tax reliefs for the orderly transfer of business or agriculture assets remain unaffected. If business or agricultural relief can be availed of then the value of the assets are reduced by 90% before Gift Tax applies.

There is sufficient pressure on the Government to reduce the benefits that are presently available under Business and Agricultural Relief. Also there is significant pressure on the Government to increase the rate of tax payable. Over the last number of years the Tax Rate has increased from 20% to 33%. The Tax Rate in the UK is 40% and some people have argued that the Gift Tax/Inheritance Tax Rate in Ireland should be increased to 40%. Over the last few years even with declining asset values, the reduction in the Tax Free Threshold and the increased Tax Rate from 20% to 33% has resulted in people being hit with significant Tax bills. Some simple Tax planning could enable people legitimately avoid Gift/Inheritance Taxes. All Farmers and Business owners should give consideration to availing of the Business/Agricultural Reliefs now. The Commission on Taxation has recommended significant reduction in these Tax reliefs. However, to date no changes have been made. However, the upcoming budget may very well see changes being made to the Tax Rates, reliefs available and thresholds.

In many respects now is the perfect time to avail of the reliefs (before any changes take effect) and whilst property values and business values are probably at their lowest.

On a separate but related matter, just because you are not receiving money from your son or daughter, doesn’t mean you won’t have to pay Capital Gains Tax. The Revenue Commissioners deem the gift as a sale at Market Value and liable to Capital Gains Tax at 33%. However, if you are over 55 you may be able to claim Retirement Relief and thereby avoid any Capital Gains Tax.

Any person, whether a business owner or farmer, should give serious consideration to planning the orderly transfer of their farm/business assets. The first and most essential step is to get good advice. Forewarned is forearmed.

For advice on Farm or Business transfers contact Marie Conroy or Sean Mahon at Mahon Sweeney Solicitors, Main Street, Roscommon and Main Street, Elphin, County Roscommon.