www.pwc.ie Succession & Inheritance Taxation Seminar October/November Speakers - Sandra O Sullivan - Maura Coppinger - Pat Hogan - Gráinne McDermott - Mary Murphy Agenda Transfers Who liable to Tax Cost? Capital Gains Tax Stamp Duty Reliefs & Exemptions Pitfalls & Clawbacks Planning Opportunities Related Issues Lifetime Transfers Succession - Capital Acquisitions Tax - Capital Gains Tax - Stamp Duty Death Transfers Inheritance - Capital Acquisitions Tax - No Capital Gains Tax - No Stamp Duty 3 4 Capital Gains Tax Capital Gain How Calculated What is Liable? - Land & Buildings - Business Assets - Houses (Principal Private Home Exempt) - Company Shares - Single Farm Payment Entitlements Rate @ 30% Windfall Tax rate @ 80% When are Returns Due? Proceeds/Deemed Proceeds Base Cost Indexation Allowable/Non-allowable Expenditure Enhancement Expenditure 5 6 1
CGT Calculation - Example CGT Reliefs & Exemptions Acquired 28 acres of farm land in 1980 for 55,000 Disposed of in November at MV of = 450,000 Disposal Consideration 450,000 Deduct: Cost of acquisition, indexed for inflation; 55,000 x 3.742= 205,810 (205,810) Capital Gain 244,190 CGT @ 30% 73,257 Transfers between Spouses Annual Exemption Principal Private Residence Small Disposals (Chattels) Transfer of site Retirement Relief Special 7 Yr exemption 7 8 Special 7 Yr exemption Retirement Relief Purchases between: - 7 December 2011 & - 31 December 2013 Disposed after 7 years Full CGT Relief Aged 55yrs or more Owned for continuous 10yr period Used for trade for 10yr period Different rules depending on recipient: - To a child - To person outside the family Clawback (6yr 10 yr) 9 10 Retirement Relief Transfers I Retirement Relief Transfers I Intra-Family Transfers (Over 66yrs): CGT Retirement Relief on Business and Farm Assets Intra-Family Transfers: Previously => No Upper Limit (i.e. full relief available) => Must be over 55Yrs From 2014 => No Upper Limit if aged 55 66 yrs => Upper limit of 3m introduced if over 66yrs 350 ac Farmland disposal Cost equivalent of 900,000 Market Value in 3,500,000 Previously Market Value 3,500,000 Cost/Portion of Cost 900,000 Chargeable Gain 2,600,000 CGT @30% Nil 11 12 2
Retirement Relief Transfers I Intra-Family Transfers (Over 66yrs): 350 ac Farmland disposal Cost equivalent of 900,000 Market Value in 3,500,000 From 2014 3m Limit Excess Deemed Consideration / Market Value 3,000,000 3,500,000 Cost 900,000 900,000 Chargeable Gain 2,100,000 2,600,000 Relieved Gain (2,100,000) 500,000 Retirement Relief Transfers II Third Party Transfers: Previously => Upper Limit 750,000 => Must be over 55Yrs From 2014 => Upper limit 750,000 only available if aged 55 66 yrs => Upper limit reduced to 500,000 for individuals over 66 yrs (Transitional measures in place for people aged 66yrs before 31 December 2013) Taxation Seminar Succession CGT @30% & Inheritance 150,000 13 14 Retirement Relief Transfers II Third Party Transfers: 74 ac Farm disposal Cost equivalent of 150,000 Proceeds in 740,000 Previously From 2014 Proceeds 740,000 740,000 Cost 150,000 150,000 Chargeable Gain 590,000 590,000 CGT @30% Nil 149,000 Marginal Relief ( 740,000-500,000)*50% 120,000 Pitfalls/Clawbacks Leased Land Cumulative limit for 3 rd party disposals New Limits for Transfers to Children Inter-spouse Transfers Use of Capital losses Disposal Aggregation post Age 66yrs 15 16 CGT Planning Opportunities CGT Filing Obligations Maximise 3 rd Party Retirement Relief Timing of Transfers/Disposals Planning where 500k/ 750k/ 3m limits are exceeded How?.. Online/Paper What?.. Part of Annual Return of Income When?... Due date for Payment.. Due date for Return 17 18 3
Stamp Duty Cases where No Stamp Duty arises: Lifetime transfer = Stamp duty Transfers on death via will/intestacy Non-Residential Property @ 2% Residential Property - First 1m @ 1% - Excess @ 2% Shares @ 1% Sale of commercial Forestry Transfer/purchase of machinery, livestock, cash, single farm payments Transfers between spouses Leases @ 1% on full open market annual rent 19 20 Reliefs I Reliefs II Consanguinity Relief Young Trained Farmer - Who?...Related Individuals - Who?...Young Trained Farmer - What?...50% rate reduction - What?...Exemption from Stamp Duty - When?...Up to 31 Dec 2014 - When?...Transfer before 35 yrs old 21 22 Example: Young Trained Farmer Relief Reliefs - Abolished Consolidation Relief Market Value of Land With No Relief No YTF Relief** With Relief - Abolished 30 June 2011 200,000 (20ac * 10k) 4,000 2,000 Zero 400,000 (40ac * 10k) 8,000 4,000 Zero 800,000 (80ac * 10k) 16,000 8,000 Zero 1,200,000(120ac* 10k) 24,000 12,000 Zero 2,000,000(200ac* 10k) 40,000 20,000 Zero 3,000,000(300ac* 10k) 60,000 30,000 Zero ** No YTF relief but includes consanguinity relief Transfer of a site to a child - Abolished 8 December 2010 (Note: CGT Relief on transfer of site to a child still available) 23 24 4
Stamp Duty Filing Obligations CAT Recap! How?.. Online What?.. Return & Payment When?... Within 30 days of date of execution of transfer! Rate @ 30% Tax Free Thresholds - Class A: 250,000 - Class B: 33,500 - Class C: 16,750 Gifts/Inheritances Aggregated Main Reliefs Available: - Agricultural Relief - Business Assets Relief - Favourite Nephew Relief 25 26 CAT Additional Points CAT / CGT Offset CAT/CGT Offset Miscellaneous CAT Issues CAT Planning Allowance for Capital Gains Tax against Capital Acquisitions Tax arising on the same event E.g. - Ann gifts land to her brother Eoin - Land Cost Ann 90,000 - Now Land valued at 200,000 - Eoin pays 100,000 - Assume: Eoin s CAT B Threshold has been used Ann s CGT Annual Exemption has been used. 27 28 CGT / CAT Offset Misc CAT Issues & Planning CGT Calculation Value at date of gift 200,000 Original Cost 90,000 Chargeable Gain 110,000 CGT liability @ 30% 33,000 Insurance Policies Free Use of Land Free Use of Money CAT Calculation Gift (market value - purchase price paid) 100,000 CAT Planning Points CAT liability @ 30% 30,000 CGT/CAT Offset (33,000) Final Tax CAT Liability Nil 29 30 5
Case Study 1: Tax implications for Tom & Joan Tom and Joan parents both farming as a partnership for over 35yrs; Original Land Cost equivalent 300,000 Aim: 3 Children to benefit as follows: - Kate Farm land & Buildings MV @ 3m - Laura Monetary Payment 400k - Mark Monetary Payment 400k Capital Gains Tax With Retirement Relief No Retirement Relief Proceeds 3,000,000 3,000,000 Cost(Excl Indexation) 300,000 300,000 Chargeable Gain 2,700,000 2,700,000 CGT @30% Nil 810,000 31 32 Tax Implications for Kate - CAT Tax Implications for Kate - SD Capital Acquisitions Tax With Agri. Relief No Agri. Relief Market Value of Land 3,000,000 Market Value 3,000,000 3,000,000 Agri relief 90% 2,700,000 n/a 300,000 3,000,000 CAT Threshold (250,000) (250,000) Taxable 50,000 2,750,000 CAT @30% 15,000 825,000 CGT/CAT Offset (810,000) NET CAT 15,000 No Consanguinity Relief & No YTF Relief Consanguinity Relief but No YTF Relief With YTF Relief 60,000 30,000 Zero 33 34 Tax Implications for Laura & Mark Family Farm Partnerships Capital Acquisitions Tax Market Value 400,000 CAT Threshold (250,000) Taxable 150,000 CAT @30% 45,000 Routine Taxation of Partnership - Taxable person - Calculation of Profits/Losses Family Summary Total Tax Cost With All Reliefs 135,000 With No Reliefs 945,000 - Division of Profits (Partnership Agreement) - Returns Required 35 36 6
Family Farm Partnerships Why is so complex? Transfer into a partnership with a child - Capital Structure - Income Sharing Structure Measures for transitioning Control - Capital Gains Tax - Capital Acquisitions Tax - Stamp Duty Structuring to reduce tax cost of transfers Financial Issues: - Financial Independence for parents - Funding payments to siblings - Viability of business for successor Recent trend of farm incorporation Debt /Loans 37 38 Structuring to reduce tax cost of transfers Financing Issues Tom & Joan - Small 3000 annual gifts to Laura & Mark Kate - Make payments to siblings - Annuity payment to her parents Financial independence for parents : - Income Stream for Parents - State pension - Private pension - Continuation of Income generation through a farm partnership; - A Deed of Covenant payable by the successor 39 40 Financing Issues Funding payments to Siblings Financing Issues Funding payments to Siblings By Parents: By Farmer Sibling: Pay non-farm successors cash lump sum: - Savings - Private Pension draw down - Proceeds of Life Policy - Policy s arranged for the discharge of CAT - Non Agricultural Investment - Lump sum payment to parents - Bank Financing - Annual Payment - Share in farm profits for a period of time 41 42 7
Financing Issues Successor Farm Viability Incorporation Question Tax Costs Advantages Division of assets Disadvantages Ongoing funding of Deeds of Covenants Transfer to a company Tax Implications Commercial Viability is Key A Question of Fact 43 44 Transferring as Sole Trade V s as a Company Income Tax Issues Rules of Cessation Averaging of Farm Profits Losses Land Leases Stock Relief Single Farm Payment 45 46 VAT Issues Debt / Loans Transferring to a partnership Loan used to make capital contribution to a partnership Debt/Loans Transferring Farm Assets Transfer of a site by VAT registered farmer to a child Farm Leases Debt transfer where: - Sole trade transferring to successor - Sole trade transferring to a company - Sole trade transferring to a partnership Sale of SFP 47 48 8
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