Reforming Agricultural Relief and Business Relief from CAT

[torblednam]

You think? I know of someone who in 2018 inherited a farm the guts of an hour's drive from where they live and it was only when the 6 year holding period ended this year that they could afford to consider its sale and replacement by purchasing another land holding in a location more convenient to them. They found the long drives to and from the inherited farm a total pain as they needed to tend to livestock there on a daily basis and sometimes more than once daily.

Ah come on now. Section 89(4) allows for the disposal within 6 years without clawback, to the extent that the proceeds are reinvested (within 12 months) in acquiring other agricultural property. If that is a true story, that person was very ill informed.

Anyway, unless they were already driving that hour to work the farm prior to inheriting it, they are definitely not the type of family farm scenario I was referring to. But even so, the carve out in S.89(4) allows that farming families can stay invested in farming assets, without losing their relief.

 

[T McGibney]

Ah come on now. Section 89(4) allows for the disposal within 6 years without clawback, to the extent that the proceeds are reinvested (within 12 months) in acquiring other agricultural property. If that is a true story, that person was very ill informed.

It does indeed and they knew and know that, and weren't in the least ill-informed.

But given the relative infrequency of available farms offered for sale close to them, they couldn't have put the inherited farm up for sale in the certain knowledge that another farm near to them would become available within that 12 month period.

It was only this year after the expiry of the 6-year period that they can comfortably sell the inherited farm without being under pressure to replace it within a very tight timeframe.

Anyway, unless they were already driving that hour to work the farm prior to inheriting it, they are definitely not the type of family farm scenario I was referring to. But even so, the carve out in S.89(4) allows that farming families can stay invested in farming assets, without losing their relief.

They were.

 

[torblednam]

Sounds like the definition of a first world problem TBH; I don't see a martyr in your tale. They were driving the hour to work someone else's farm before they inherited it, and they're still driving the hour now, except that it's their own farm.

They have options if they're unhappy with that,
move (most farms have a dwelling house, or failing that, the scope for one),
hire in help,
let it,
sell it and reinvest,
sell it and don't reinvest (and pay some tax).

 

[T McGibney]

Sounds like the definition of a first world problem TBH;

Wow, how negative!

Literally every issue mentioned on this site can be dismissed as "first world problem"

I don't see a martyr in your tale. They were driving the hour to work someone else's farm before they inherited it, and they're still driving the hour now, except that it's their own farm.

They have options if they're unhappy with that,
move (most farms have a dwelling house, or failing that, the scope for one),
hire in help,
let it,
sell it and reinvest,
sell it and don't reinvest (and pay some tax).

This farm didn't have a habitable dwelling house.

Any other red herrings you patronisingly wish to raise?

 

[torblednam]

Any other red herrings you patronisingly wish to raise?

What's patronizing about pointing out that a person has options? The fact that not all options are applicable in this case doesn't make them red herrings generally.

(As one of the most scathing posters on this site, it's a bit of a pot kettle for you to throw that at me BTW!!)

Literally every issue mentioned on this site can be dismissed as "first world problem"

Is this farm the main / sole source of income for this person's household? When they were doing this 2-hour round trip before they inherited it, so presumably they were being paid then by their parent / relative? I fail to see how there's a hardship being imposed or sustained by harshness in the tax code - as the proprietor now, they can choose to continue working it themselves, pay someone else to do it (or some of it), or let it for the clawback period.

 

[T McGibney]

I fail to see how there's a hardship being imposed or sustained by harshness in the tax code

Nobody mentioned hardship or harshness til you did.

You said

... a longer holding period (for agricultural relief) will have very little impact on the bona fide family farm situation.

I gave you an example of a case that contradicts that.

That's all.

 

[Ardagh78]

How ordinary CAT works

If I inherit an investment property from my mother worth €2,335,000
The first €335,000 will be exempt from CAT
The remaining €2m will be taxed at 33%, so I will pay €660,000.

How Business and Agricultural Relief work at present.

If I inherit a farm or a business worth, €2,335,000, the €2,335,000 is reduced by 90% to €233,500. In other words, I am deemed to have received an inheritance of €233,500 and not €2,335,000.

As this is less than the Group A threshold of €335,000, I will pay no CAT.

If I sell within 6 year, there will be clawback. But if I wait for 6 years and then sell, I will have no CAT liability.

To get Agricultural Relief, you must meet some other criteria e.g. you must be an active farmer.

Some of the more important criteria has been omitted. For example, the agricultural farm must be worth more than 80% of the assets owned by the person who is inheriting the farm in order to qualify for the relief.

 

[torblednam]

Nobody mentioned hardship or harshness til you did.

You said

I gave you an example of a case that contradicts that.

That's all.

You can get into semantics all you like, but to my mind, a bona fide family farm situation is one where there's an explicit intention on the part of both the disponer and the beneficiary, that the farm in question will be staying in the family (you previously mentioned elsewhere that the median field of agri land in Ireland is sold every few hundred years).

You've produced an example where that clearly isn't the intention from the outset, hence I don't find it very persuasive in making a case against a longer holding period.

While we're into semantics, I said little impact, not none, and the only type of impact that might sway me in relation to the concept would be impact that results in hardship or harshness.

 

[T McGibney]

You can get into semantics all you like, but to my mind, a bona fide family farm situation is one where there's an explicit intention on the part of both the disponer and the beneficiary, that the farm in question will be staying in the family

This was precisely the case in the example I cited. There was never any expectation 6, 7 or 10 years ago that the farm would ever be sold outside the family. But the inheritor found that the burden of farming a distance from their home and young family was an unsustainable one, and has to let it go.

Now, any chance maybe of letting this go? It's getting increasingly tiresome having to rebut your presumptions and red herrings.

 

[Brendan Burgess]

It is very generous that the reliefs as currently formulated allow for a sale after 6 years without any clawback.

This is the key issue which I am trying to solve - the huge discrepancy between inheriting agricultural land and other assets like investment properties or shares.

Extending it to 10 years helps, but doesn't solve it either.

Maybe full clawback within 10 years tapering to 20 years.

There should not be a double charge to CAT and CGT. If the current legislation means that there would be, that would have to be changed.

Would the record keeping be that complicated? Record the gift or inheritance of the land and that exemption from normal CAT was claimed.

I think that the Revenue's records are pretty good and could handle them.

Brendan

 

[Gordon Gekko]

My own view is that the current rules for Business Property Relief and Agricultural Relief are broadly fine. There are clawbacks already. I’d probably tighten up the AR rules a little to stop people gaming the ‘leased to farmers’ carve out.

The preferential treatment versus cash or investments makes total sense. Businesses and farms create employment and family businesses are important. Preferential tax treatment for business activities is all over our tax code, e.g. 12.5% corporation tax for trading income versus 25% for passive investment income.

 

[torblednam]

Now, any chance maybe of letting this go? It's getting increasingly tiresome having to rebut your presumptions and red herrings.

What you're talking about is an edge case, as far as I'm concerned - any lads I know that were to be left a family farm (and I know plenty, I'm not from the big smoke) never moved / settled an hour away from the farm they were intending to work for the rest of their lives.

I'll let it go after this, but mainly because you're choosing which bits of my posts to reply to in your replies and ignoring direct questions, so I'm also getting tired / bored, of trying to draw information out of you.

This was a discussion about the general, and you brought it down to a very specific situation. If you skimp on detail and then won't answer questions or flesh out the detail, for your specific example, then the other person will have to base their responses on assumptions. It's a bit disingenuous to then criticize the other person for making assumptions. It's almost as if you just want the things you say to be beyond challenge... (the Gospel according to Tommy).

So I stand over my original assertion which is that extending the clawback period to 10/15 years would be likely to have little impact on bona fide family farms i.e. those that generally change hands only once every 40-50 years (or certainly less frequently than the proposed clawback period), between successive generations of actual farmers.

 

[T McGibney]

any lads I know that were to be left a family farm (and I know plenty, I'm not from the big smoke) never moved / settled an hour away from the farm they were intending to work for the rest of their lives.

Surprise, surprise in the modern era, many or most farmers also have a job and/or a spouse who typically has a career and a life and commitments of their own and sometimes don't particularly want for example to live on the farm itself or even in the countryside or a particular area.

I'll let it go after this, but mainly because you're choosing which bits of my posts to reply to in your replies and ignoring direct questions, so I'm also getting tired / bored, of trying to draw information out of you.

I've literally answered about 6 of your questions so far about the example case I raised. I am not here to be interrogated on every little detail and I'm certainly not going to divulge any circumstantial detail that might reveal to some users here the identity of the person whose case I have mentioned.

This was a discussion about the general, and you brought it down to a very specific situation.

Well if your general assumption doesn't hold for a specific real-life situation, that's a tell-tale sign that it's probably flawed.

If you skimp on detail and then won't answer questions or flesh out the detail, for your specific example, then the other person will have to base their responses on assumptions. It's a bit disingenuous to then criticize the other person for making assumptions. It's almost as if you just want the things you say to be beyond challenge... (the Gospel according to Tommy).

It is absolutely out of order for you to personally attack me in such a manner. (I wouldn't dare reciprocate and never ever have done so.)

So I stand over my original assertion which is that extending the clawback period to 10/15 years would be likely to have little impact on bona fide family farms i.e. those that generally change hands only once every 40-50 years (or certainly less frequently than the proposed clawback period), between successive generations of actual farmers.

There we differ. And your definition of "bona fide family farms" is fast going out of date. See my point above about modern farm spouses.

 

[Purple]

This is the key issue which I am trying to solve - the huge discrepancy between inheriting agricultural land and other assets like investment properties or shares.

Extending it to 10 years helps, but doesn't solve it either.

Maybe full clawback within 10 years tapering to 20 years.

There should not be a double charge to CAT and CGT. If the current legislation means that there would be, that would have to be changed.

Would the record keeping be that complicated? Record the gift or inheritance of the land and that exemption from normal CAT was claimed.

I think that the Revenue's records are pretty good and could handle them.

Brendan

A successful economy and society needs capital invested in employment and wealth that creates. A house worth €2 million doesn’t create employment or economic activity. It doesn’t create wealth. When it goes up in value it sucks capital out of the wealth creating sectors of the economy.
From a social and economic perspective taxing the bejasus out of it doesn’t have any negative knock on consequences.

The same goes for shares; if I inherit them and have to pay tax on them their intrinsic value does not decrease.

In that they are entirely different from a wealth creating business or farm which employs people and generates economic activity. A big tax bill will necessitate the inheritor to take out a loan against the business to fund the tax bill and then pay it back with income from the business, thus reducing the working capital available to the business.

That’s why family businesses and farms should be treated differently when it comes to inheritance tax.

 

[torblednam]

I've literally answered about 6 of your questions so far about the example case I raised. I am not here to be interrogated on every little detail and I'm certainly not going to divulge any circumstantial detail that might reveal to some users here the identity of the person whose case I have mentioned.

Look again. I've asked you three questions since you raised that case; one of them not related to the case after you personally attacked me (to use your turn of phrase) of being patronizing and throwing out red herrings - you didn't answer that.

The other two, you also didn't answer. And the suggestion that answering them would be likely to somehow identify the person is, frankly, laughable. You haven't disclosed (nor were you asked to) their age, gender, location or any other identifying information.

 

[T McGibney]

Look again. I've asked you three questions since you raised that case; one of them not related to the case after you personally attacked me (to use your turn of phrase) of being patronizing and throwing out red herrings - you didn't answer that.

My observation that you were being patronising and throwing out red herrings does not by any stretch of the imagination constitute a personal attack on you.

If you perceive or ever have perceived that I have personally attacked you here, you should report the post(s) in question for moderator review.

The other two, you also didn't answer. And the suggestion that answering them would be likely to somehow identify the person is, frankly, laughable. You haven't disclosed (nor were you asked to) their age, gender, location or any other identifying information.

How can you tell? Some of the people who use and contribute to this site know exactly who I am, the precise locations where I grew up and where I live, and who my neighbours are and were. Why should I risk outing another person's identity and circumstances to any of these people at least some of whom I suspect might be able to add two and two together were I to divulge sufficient extra circumstantial information?

 

[Brendan Burgess]

In that they are entirely different from a wealth creating business or farm which employs people and generates economic activity. A big tax bill will necessitate the inheritor to take out a loan against the business to fund the tax bill and then pay it back with income from the business, thus reducing the working capital available to the business.

My proposal does not require a loan to be taken out. The CAT would be paid only when the business is sold.

I am amazed that people don't see what is manifestly unfair about people inheriting up to about €3m and paying no CAT on it.

Brendan

 

[T McGibney]

My proposal does not require a loan to be taken out. The CAT would be paid only when the business is sold.

I am amazed that people don't see what is manifestly unfair about people inheriting up to about €3m and paying no CAT on it.

Brendan

Few businesses are ever sold Brendan.

Few businesses last beyond a second generation.

Few business owners will ever want to bequeath a big deferred tax bill to their children.

The only prudent action would be for business owners to attempt to repay the loan in the meantime. But, for all but the most successful, that will be a tall order.

 

[Brendan Burgess]

If the business is not sold, there is no CAT liability!

So there is no loan.

I am answering the objections that you all made that imposing a CAT liability would lead to the closure of businesses.

Just to be clear on what I am proposing.

If a business or farm is sold, the seller pays CAT on it at the sales value. And no CGT.

If the business or farm, is never sold, no CAT arises.

 

[T McGibney]

If the business is not sold, there is no CAT liability!

What happens if the business sells some assets in the meantime?
Machinery or vehicles for example?

What usually happens in many family businesses is that they eventually close down and the owners rent out the vacated property to a third party. It wouldn't be good if the CAT system were to encourage business people to do this unnecessarily.

What happens a deferred CAT liability if a business closes down and the owners form a new company and start a similar but slightly different business?