FARMING LAW & TAX
UPDATE 2017
19 January 2017
Kieran Coughlan
Coughlan Accounting &
Taxation Services Limited
Disclaimer
• Obtain relevant professional advice (legal and taxation) relevant to your own circumstances
• The following is intended as a guide and does not construe advice in relation to any circumstance
• The accompanying information is not to be regarded as comprehensive in dealing with all relevant taxes
• No liability is accepted to any party as result of any action or inaction as a result of the use or misuse of the
following information
• The following information is copyright to Coughlan Accounting & Taxation Services and may not be
reproduced, circulated or shared with others without prior written consent © 2017
Coughlan Accounting &
Taxation Services Limited
Background
Coughlan Accounting &
Taxation Services Limited
Order of business
• Part 1 Tax changes for 2016 / 2017 - a farmers perspective
• Part 2 Succession farm partnerships
• Part 3 Farm Company incorporation – an option?
• Part 4 Planning the transfer of the family farm
• Part 5 Practical tax planning
Coughlan Accounting &
Taxation Services Limited
Tax changes for 2016 / 2017
• Income tax
• USC
• PRSI
• Capital Gains Tax
• Gift Tax
• Stamp Duty
Coughlan Accounting &
Taxation Services Limited
Income tax changes 2016 / 2017
• Increase in Self-Employed tax credit to €950 per annum
• Commenced from 2016 @ €550, n/a to those with PAYE tax credit
TAX PLANNING: - Consider farming in partnership with spouse
- PRSI benefits
- Additional tax band
- Reduced USC
• Increase in home carer credit to €1,100
• 2015: €810, 2016 €1,000, 2017 €1,100
• Income limits increased to €7,200
TAX PLANNING: - Second spouse working versus stay at home parent/carer
- Part time employment hugely efficient – 2ndry PRSI benefits
+/- Carers allowance
- Utilise in conjunction with Childcare Services Relief
Coughlan Accounting &
Taxation Services Limited
Income tax changes 2016/2017
• Energy efficient equipment
• Extension of 100% tax relief (accelerated allowances) to individuals
• Lighting, motors and drives, heating and electricity, refrigeration and
cooling etc
• Minimum spending typically €1,000
TAX PLANNING: - Spec’ing up new equipment & buildings fitout
- Separate invoicing in respect of qualifying elements
Coughlan Accounting &
Taxation Services Limited
Income tax changes 2016 / 2017
• Income averaging
• Origins Finance Act 1981
• Reformed as part of Agri-Taxation Review
• Assessable farm profits averaged over 3 years changing to average over 5
years
• Extension to 5 years should reduce deviation of tax liability – consistent
tax bills
• Suitability with volatility??
• Broadening of relief to farmers with ancillary income from activities
carried on the land
• Extension to 5 years has major disadvantage – doubling of potential claw
back period from 2 years to 4 years
• FA2016 new relief allowing farmers step out of averaging for one year
Coughlan Accounting &
Taxation Services Limited
Income tax changes 2016 / 2017
• Income Averaging
TAX PLANNING:
- Evaluate is income averaging actually saving tax over longer term
- Optimum time to exit averaging w.a.v minimsing clawbacks
- Planning cessation to trade to avoid clawback
- Using opt-out for year 2016 or future years
- Alternatives – pay as you go prelim
- Company incorporation
Coughlan Accounting &
Taxation Services Limited
Income tax 2016 / 2017
• New Succession Farm Partnerships
Coughlan Accounting &
Taxation Services Limited
USC 2016 / 2017
• Significant reductions in rates
2015
Rate
2016
Rate
2017
Rate
€12,012 1.5%
€12,012 1%
€12,012 0.5%
€5,564
€6,656
€6,760
3.5%
3%
2.5%
€52,468 7%
€51,376 5.5%
€51,272 5%
Balance 8%
Balance 8%
Balance 8%
Coughlan Accounting &
Taxation Services Limited
PRSI 2016 / 2017
• Increases in certain social welfare rates
• Paternity benefit introduced
• Extension of invalidity pension to self-employed
• Dental, Optical and Aural benefits extended to self-employed +
dependent spouse/partner/co-habitant
• Farm Assist income disregards restored from March 2017 – off
farm income assessed at 70% to pre 2013 levels
• Tapered PRSI Class A rates now from €352 to €424
TAX PLANNING:
- Maintaining PRSI record
- Applying for relevant benefits
Coughlan Accounting &
Taxation Services Limited
Capital Gains Tax
• Entrepreneur Relief - reduced rate of CGT of 20% in the case of
a disposal of chargeable business assets made by an individual
on or after 1 January 2016 up to a lifetime limit of €1m.
TAX PLANNING
• Retirement Relief vrs Entrepreneur Relief
Coughlan Accounting &
Taxation Services Limited
Capital Gains Tax
Retirement Relief
• Complete relief from CGT
• Cap of €750k / €500k
• No Cap re children if < 66 else
•
•
•
•
•
3m
Lifetime limit
>55 age
Owned assets for 10 years
Used assets for 10 years of
ownership
Available for land which has
been leased out (retired
farmer)
New Entrepreneur Relief
• 20% CGT
• Cap of €1m
• Lifetime limit
• No age restriction
• 3 year ownership
• Not available for land rented
out
• Wider scope that RR –
“business” rather than trade
& profession
Capital Gains Tax
TAX PLANNING
• If RR not available consider Entrepreneur Relief
• If RR restricted consider Entrepreneur Relief for excess
Coughlan Accounting &
Taxation Services Limited
Capital Gains Tax
• Retirement Relief (RR)– 31/12/2016 end of transition which
allowed land owners convert from con-acre to lease
arrangements
• RR can continue to apply to land which is let where:
• Owner over 55
• Owned land and worked land for > 10 years prior to first letting
• Sale or transfer within 25 years
• In the case of sale or transfer to 3rd party, new rules insist land must be
let for periods of not less than 5 years
TAX PLANNING:
- For those ceasing to farm - engage in leasing to keep options open
- Leasing for successive periods
Coughlan Accounting &
Taxation Services Limited
Capital Gains Tax
• Retirement Relief
• Leased land - TAX PLANNING:
- For those ceasing to farm - engage in leasing to keep options open
- Leasing for successive periods
- Strict interpretation – each letting for at least 5 years
- Sale or transfer within lease term?
Coughlan Accounting &
Taxation Services Limited
Capital Gains Tax
• Restructuring relief extended from 01/01/2015 to 31/12/2018
Coughlan Accounting &
Taxation Services Limited
Gift & Inheritance tax (CAT)
Restriction of Dwelling house exemption
Inheritances
• Donor must have occupied house as only/main residence at date of
death
• Beneficiary lived in house for 3 years pre inheritance
• Beneficiary not entitled to any other dwelling house
• Must continue to occupy for 6 years subsequent
Gifts to dependent relatives
• Donor need not have occupied house as PPR
• Dependent relative – over 65 or permanently and totally incapacitated
Coughlan Accounting &
Taxation Services Limited
Gift & Inheritance tax (CAT)
Restriction of Dwelling house exemption
Tax Planning
• Incorporate dwelling house exemption into Will planning while children
are young
Coughlan Accounting &
Taxation Services Limited
Gifts & Inheritance Tax (CAT)
• Agricultural Relief post 01/01/2015
• Farmer =
a) > 80% Agricultural assets &
b)
i)farms land > 50% time or
ii) trained farmer or
iii) leases land for 6 years to i) or ii)
Restriction in relation to farm houses
TAX PLANNING
- Consider Business Relief as alternative
Coughlan Accounting &
Taxation Services Limited
Gift & Inheritance tax (CAT)
Restriction of Dwelling house exemption
Inheritances
• Donor must have occupied house as only/main residence at date of
death
• Beneficiary lived in house for 3 years pre inheritance
• Beneficiary not entitled to any other dwelling house
• Must continue to occupy for 6 years subsequent
Gifts to dependent relatives
• Donor need not have occupied house as PPR
• Dependent relative – over 65 or permanently and totally incapacitated
Coughlan Accounting &
Taxation Services Limited
Stamp Duty
• Young Trained Farmers Exemption extended to 31/12/2018
• Consanguinity Relief - from 01/01/2016;
• Applicable only to land
• Transferor < 67
• Must either farm land > 6 years or
• Lease land for more than 6 years
• If farming must either be trained or > 50% of N.W. time
Coughlan Accounting &
Taxation Services Limited
Part 2
Coughlan Accounting &
Taxation Services Limited
Succession Farm Partnerships
• Introduction of new Succession Farm Partnerships
(EU State Aid Approval Granted, pending admin arrangements)
• Transfer 80% to successor within 3 to 10 years
• Income tax credit worth up to €25,000 – no credit payable where
successor over 40 in year of assessment
• Credits split according to partnership profits
• Stock relief 50%
Disadvantages
• Formal registration with business plan
• Potential for clawback
• Non compatible with incorporation
• Time frame for Stamp Duty Relief
Coughlan Accounting &
Taxation Services Limited
Succession Farm Partnerships
• More Detail:
• Existing farmer, at least 3 ha (owned or leased), > 2 years preceding
partnership
• Successor entitled to at least 20% profits
• Partnership agreement
• details of the farm assets of partnership
• conditions to which the transfer or sale will be subject,
• the year in which the transfer or sale will take place,
• any other terms which the successor and farmer agree to, including any terms
in relation to the farm assets, the conduct of the farming trade or the creation
of any rights of residence in dwellings on the farm land.
Coughlan Accounting &
Taxation Services Limited
Succession Farm Partnerships
TAX PLANNING:
- Is this a viable option? Are parties ready to enter a formal
agreement?
- Alternatives – “regular” partnerships, company incorporation,
family wages etc.
- Look at medium term – how will business have changed over
medium term
- Flexibility within agreement – sell or transfer, timing,
- Ultimate option to default on agreement
- Coincide with stock relief & stamp duty relief (special care
consanguinity relief > 67)
- Special care – will other reliefs be available at the nominated point
of transfer?
Coughlan Accounting &
Taxation Services Limited
Part 3
Coughlan Accounting &
Taxation Services Limited
Farm Incorporation
• Advantages
• Disadvantages
• 12,5% Rate
• Higher level of compliance
• Directors loan
• CRO reporting
• Enhanced pension options • Company profits remain such
• PRSI benefits
• Higher rate of CT to passive
income
• Limited liabiltiy
• PRSI costs
• Stability of personal
taxation – management of • Future succession becomes
volatiltiy
more complicated
• “Costs” of incorporation
Coughlan Accounting &
Taxation Services Limited
Taxation move towards incorporation
• Lease land exemption 3rd parties
• Extension of new Agricultural Relief rules
• Farm restructuring relief
Coughlan Accounting &
Taxation Services Limited
Farm incorporation
• First Stage - Assess viability
• Current profits and expected future profits
• Capital allowances remaining
…expected income tax position thereon
• Evaluate level of drawings and expected future drawings
• Profits versus drawings
...capacity of company to accumulate profits
= potential tax savings from incorporation
Coughlan Accounting &
Taxation Services Limited
Farm incorporation
• Second stage – costs of incorporating
• Direct costs
i) company incorporation fee
ii) professional fees;
Accountant
Tax Consultant
Agricultural Consultant
Legal fees (will)
Auctioneers fee – valuations / lease
• Hidden costs - tax clawbacks
i) Income averaging
ii) Agricultural Relief
iii) Balancing charges
iv) Banking charges
v) Insurance costs
• Future costs
i) Loss of stamp duty relief
ii) Double charge to CGT
iii) Non-availability of certain reliefs
Coughlan Accounting &
Taxation Services Limited
Farm incorporation
• Third stage – tax planning for incorporation and for succession
• Avoiding or minimising tax clawbacks, avoiding pitfalls
• Maximising directors loans tax efficiently
• Tax planning for Wills
• Develop scenarios for tax efficient succession
• Land
• Land + Company
• Company only
• Non-succession options
•
Coughlan Accounting &
Taxation Services Limited
Farm incorporation
• Fourth stage
• Company incorporation
• Banking facilities
• Registration for taxes
• Department of Agriculture – BPS / Herd Number
• Notification of suppliers and customers, milk supplier
• Lease agreement
• Transfer of machinery
• Updating of insurance
• Milk production shares
Coughlan Accounting &
Taxation Services Limited
Farm incorporation
• Fifth stage
• Recap along the way
Coughlan Accounting &
Taxation Services Limited
Coughlan Accounting &
Taxation Services Limited
Planning the transfer of family farm
DEAD
• No stamp duty
ALIVE
• Young trained farmer relief
• Half rate (consanguinity)
relief
• No CGT
• Retirement relief
• Entrepreneur relef
Planning the transfer of family farm
DEAD
• Inheritance Tax (CAT)
• Agricultural Relief
• Business Relief
ALIVE
• Gift tax (CAT)
• Agricultural Relief
• Business Relief
Planning the transfer of family farm
DEAD
• Practical disadvantages
• Fair Deal Scheme
• Stale blood
• Ability to claim Ag-Relief may
be compromised (asset test)
• Ability to claim Business Relief
may be compromised
• Potential restriction of tax relief
regime
• Disputes & disputed wills
• Probate
ALIVE
• Practical disadvantages
• CAT, CGT and SD to negotiate
• Assoc. potential for clawbacks
• Making provisions for
transferors
• Marital breakdown
• Dual legal representation
• Releasing control
Tax Planning pre & post death
Pre
• Availing of existing reliefs
• Small gift exemption
• Will planning
Post
• Available Reliefs
• Specific bequests & disclaimers
• Deeds of family arrangement
• Discretionary Trusts
• Section 72 policy
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Taxation Services Limited
Almost the worst time to engage in tax
planning…
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Taxation Services Limited
Coughlan Accounting &
Taxation Services Limited
Planned approach
1.
2.
3.
4.
5.
6.
7.
8.
Identify successor
Identify preferred timing of transfer
CONSIDER DISCUSSING PLANS WITH SUCCESSOR & OTHERS
Assess availability of tax reliefs at expected timing of transfer
Contingency planning (will in the case of lifetime transfer)
Contingency planning (alternative successor in the case of
eventualities)
Contingency planning (restriction of tax reliefs)
Provisions to protect you & protect farm
Coughlan Accounting &
Taxation Services Limited
Wills
• Designing Will to avoid disputes – legal right share
• Spouse / Civil Partner / Co-habitants
• Valid wills & Intestacy
• Talk
• Letter of wishes
Coughlan Accounting &
Taxation Services Limited
Will Planning – Legal Right Share
Valid Will
Intestacy / Invalid
Will
Married (no
children /
grandchildren)
50%
100%
Married (+ children
/ grandchildren)
33%
67%
Co-habitant
0%
0%
*Married & Civil Partners equivalent
Coughlan Accounting &
Taxation Services Limited
Will Planning – Legal Right Share
Valid Will
Intestacy / Invalid Will
Children (parents spouse
deceased)
**
100%
Children (parents spouse
alive
**
33%
**Children no automatic right – can contest in the
case they have not be adequately provided for
Coughlan Accounting &
Taxation Services Limited
• Separated – same as spouse
• Extinguished if included as term of separation agreement
• Extinguished by divorce
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Taxation Services Limited
Will Planning - Owing assets jointly
• Understand how joint ownership can affect will planning
• Joint tenants – owed jointly, passes to joint owner – outside the
scope of a will
• Tenants in common – owned jointly, ability to alternative
successor
Coughlan Accounting &
Taxation Services Limited
Tax Planning Examples
Coughlan Accounting &
Taxation Services Limited
Practical Example 1:
Dwelling house exemption
• Scenario: Husband & Wife, 1 child 1 PPR €500,000, 2 Rentals
•
•
•
•
€250,000 each
Life assurance covers mortgage
Opportunity for children to benefit from Dwelling House
Exemption
Preserving thresholds
Legal right share - Right to family home in satisfaction of
benefit
Coughlan Accounting &
Taxation Services Limited
Example 1 - Outcome
With dwelling house exemption
• Total inheritance by child (now &
future)
€1,000,000
• Dwelling house exemption
(€500,000)
• Taxable inheritance
€500,000
Without dwelling house exemption
• Total inheritance by child (now &
future)
€1,000,000
• Taxable inheritance
• Lifetime exemption
• Lifetime exemption
€1,000,000
(€310,000)
(€310,000)
• Net balance subject to tax
€690,000
• Net balance subject to tax
Taxable at 33%
€190,000
€63,333
Taxable at 33%
€227,700
Practical Example 2:
Agricultural Relief
• Parents, farm land & farm house €500,000, Cash €150,000,
shares €25,000,
• Transfer all assets to child on death
Coughlan Accounting &
Taxation Services Limited
Example 2 – Agricultural Relief
No Agricultural Relief
Total inheritance by child €675,000
• Taxable inheritance
€675,000
• Lifetime exemption
With tax planning (3 methods)
Total inheritance by child €675,000
• Agricultural Relief
90%
• Taxable inheritance
€67,500
(€310,000)
• Lifetime exemption
(€310,000)
• Net balance subject to tax
€365,000
• Net balance subject to tax
Nil
Taxable at 33%
€120,450
Taxable at 33%
Nil
Practical Example 3:
Timing of transfers
• Parents 3 houses €250,000 each, cash €400,000, 2 children
• Intention gift house to each child first, gift cash later
Coughlan Accounting &
Taxation Services Limited
Example 3 – Timing of transfers
House first, cash after
House to child
€250,000
Capital gains tax payable say €40,000
Net gift taken by child
Tax due now
€210,000
Nil
With tax planning (3 methods)
Cash to child
€200,000
Net gift taken by child
€200,000
Tax due now
House sold to child
CGT payable
Cash
Excess over threshold
Taxable at 33%
Nil
€250,000
€40,000
€200,000
Excess over threshold
€100,000
Taxable at 33%
Offset of CGT
€33,000
(€40,000)
€100,000
€33,000
Practical Example 4:
Newly formed company
Assets owned
• Directors loan €400,000 (from sale of stock, machinery and
entitlements)
• Dwelling house and farm €1,200,000
• Company worth Nil
• Assets transferred equally to 2 children
Coughlan Accounting &
Taxation Services Limited
Example 4 – Newly Formed Company
Transfer of assets equally to children
Agricultural Relief not applicable
Business Relief not applicable
Net gift taken by child
Excess over threshold
Taxable at 33%
With tax planning
1) Splitting of assets
2) Trust
3) Application toward agri-assets
€800,000
€490,000
€161,700
Each
Net gift taken by child
Agricultural relief
Excess over threshold
Taxable at 33%
€800,000
90%
Nil
Nil
Practical Example 5:
Transfer of farm to nephew
Assets owned
• Farm land €1,200,000
• Nephew owns house €400,000
• Residue of estate to niece
• Nephew separated & No agricultural relief
Coughlan Accounting &
Taxation Services Limited
Example 5 – Transfer of farm to nephew
Transfer of farm to nephew
Agricultural Relief not applicable
Business Relief not applicable
Taxable inheritance
€1,200,000
Excess over threshold
€1,170,000
Taxable at 33%
€386,100
+ Exposure to future settlements
With tax planning
Business Relief
€38,610
Alternative to protect
Life interest to Nephew + remainder to
grand nephew
Practical Example 6:
Retirement relief + Leasing
• Farmer over 55, 3 parcels
• Lease outside parcel 40 acres to rent near home
• Preserving RR
Coughlan Accounting &
Taxation Services Limited
Example 6 –
Retirement Relief + leasing
Conacre
Leasing + tax planning
• Rental income taxable
• Rental income exempt
• Rental payments, an
• Rental payments, an
expense
expense
• Sale of outside block taxable
• Sale of outside block exempt
• Purchase of new block liable
• Gift to child w.a.v.
to stamp duty
purchasing land
• YTF exemption
• Thanks for your attention
Coughlan Accounting &
Taxation Services Limited