When the Treasury Department introduced a capital gains tax exemption for certain sales and transfers of property for people over 55, they called it Retirement Relief.
They assumed that anyone who sold a property or transferred a farm would retire.
Luckily, they haven’t made retirement a condition of these valuable perks – since many people who take the perks have no intention of retiring.
There are two versions of pension insurance.
Section 598 exemption applies to the sale or disposition of business or farm property.
The more common Section 599 relief (which I’ll discuss in my next article) applies to family transfers of farms or businesses. In the eyes of the tax authorities, a voluntary transfer is no different from a sale, but the pension insurance can offer a tax exemption in the case of family transfers.
Section 598 relief
People over the age of 55 and under 66 can sell their business assets, such as real estate, up to €750,000 free of capital gains tax, be it a single sale or a combination of sales.
For people over the age of 66, the limit is reduced to €500,000.
If lifetime limits of €750/€500,000 are exceeded, the excess will be taxed at 50 per cent unless it is tax efficient to pay tax on the actual gain – which in certain situations may be as low as 10 per cent if the person who sold the land, has farmed it for three of the last five years.
“Taxable business assets” eligible for retirement include:
■ Land that is actively farmed, or;
■ land leased under certain conditions;
■ Shares in a family business;
■ Farm rights sold with land.
There are conditions that must be met, such as:
■ The relief is only available to persons over 55 years of age;
■ In the case of land, it must have been owned and farmed for the 10 consecutive years preceding the sale, or;
■ If land has been leased since December 31, 2016, it must be a lease agreement with a term of at least five years.
■ Properties rented/leased for 25 years or more are not eligible unless the seller was a participant in the Early Farm Retirement Scheme.
■ Shares in a family business must have been owned for at least 10 years and the person claiming the exemption must have been the managing director of the company for at least 10 years during which he or she was a full-time managing director for at least five years.
Shares in a family business
Many farmers operating through a business may have accumulated a good pot of cash that they wish to access for a variety of reasons.
The most common reason is to give money to their children as part of their succession plan.
If the company has been in business for 10 years or more, the option of taking advantage of the pension plan, which can be used to withdraw up to €750,000 tax-free, can be very attractive.
Transfer of land into common names
There are pitfalls to be aware of, e.g. B. When transferring property into common names – which is often done to maximize the tax exemption on property leases.
A transfer between spouses is tax-free. However, if the transferor is over 55 years old, this will be considered a sale and will erode the €750,000/€500,000 threshold depending on the value of the property being transferred.
For example, Joe, who is 60, is transferring his $1.5 million farm into joint names with his wife Mary. He has thus used up his entire tax-free threshold of €750,000 that might have been available to offset against a future property sale.
So if you are over 55 and there is a possibility that you could sell land in the future, get good advice before transferring that land into common names.
More than a sale
Occasionally I come across a rather unfair situation where a farmer is considering selling land where he has previously sold some land and received pension assistance.
The combined sales proceeds could well exceed its threshold, which will result in the original deduction being reclaimed in part or in full.
Again, the message to any landowner considering a sale, especially if they have previously sold land or property, is to seek professional advice before making a decision, as the tax bill could be as much as 50 percent of the sale proceeds.
Martin O’Sullivan is the author of the ACA Farmers’ Handbook and is an agricultural business and accountant based in Carrick-on-Suir; www.som.ie
https://www.independent.ie/business/farming/agri-business/finance/martin-osullivan-how-to-avail-of-retirement-relief-even-if-you-have-no-intention-of-retiring-41690712.html Martin O’Sullivan: How to use retirement money – even if you don’t intend to retire