Revenue Note for Guidance

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Revenue Note for Guidance

598 Disposals of business or farm on “retirement”

Summary

This section provides for relief from capital gains tax in the case of an individual on the disposal of all or part of the chargeable business assets of his/her business or farm. The relief also applies to the disposal by an individual of all or part of the shares of a company which is a trading or farming company and the individual’s family company or a member of a trading group of which the holding company is the individual’s family company and certain personally owned assets used by the company. It also applies in the case of the disposal of land which has been leased under the 1992, 1999 or 2005 EU “Early Retirement from Farming” Schemes, where the land was for a period of 10 years or more prior to such a lease owned by the individual and used by him or her for the purposes of farming throughout that period. To qualify, the individual must be at least 55 years of age at the time of the disposal – it is not necessary that he/she retire from the business or farm.

Land which has been let qualifies for relief, subject to certain conditions, as do EU Single Farm Payment Entitlements, where they are disposed of at the same time and to the same person as land to the extent that the land would support a claim to payment in respect of such Payment Entitlements.

The assets (apart from tangible movable property) or shares in question must have been owned by the individual for a period of not less than 10 years ending on the date of the disposal and have been chargeable business assets throughout the 10-year period ending with the disposal. In addition, where the disposal is of shares, the company in which the shares were held must have been a trading or farming company and the individual’s family company, or a member of a trading group of which the holding company is the individual’s family company, during a period of not less than 10 years ending on the date of disposal. Moreover, in any such case, the individual must have been a working director of the company for a period of not less than 10 years during which he/she has been a full-time working director for not less than 5 years.

The period that an individual was a director of a company will be deemed to include the period during which the individual was a director of another company where, under the scheme of reconstruction or amalgamation, shares in that other company were exchanged for shares in the first-mentioned company.

Relief under the section is also allowed in respect of compensation made under the scheme for the decommissioning of fishing vessels implemented by the Minister for Agriculture, Fisheries and Food in accordance with Council Regulation (EC) No. 1198/2006 of 27 July 2006. In order to qualify for relief, the person who is entitled to compensation under the scheme must have owned and used the fishing vessel for the purpose of fishing for at least 6 years prior to receiving that compensation and be at least 45 years old at that time.

Full relief is available where the proceeds from the disposal do not exceed €750,000. In such a case, no tax is charged on the gains arising. If the proceeds exceed €750,000, marginal relief may apply. It should be noted that this limit is an aggregate limit, that is, the relief is limited to an aggregate consideration of €750,000 for all disposals of qualifying assets made after the individual has reached 55 years of age. However, proceeds from disposals which qualify for relief under section 599 (disposals within family of business or farm) are not taken into account in calculating the €750,000 limit. In the case of disposals on or after 1 January 2014 by individuals aged 66 years or over, the limit will be reduced to €500,000.

The receipt by an individual of a payment made by a company on the redemption, repayment or purchase of its own shares which is not treated as a distribution for the purposes of Chapter 2 of Part 6, will come within the scope of the relief and will, therefore, be taken into account for the purpose of the €750,000 threshold.

Relief will only apply where the disposal is made for genuine commercial reasons and its sole or main purpose is not the avoidance of tax.

Details

Definitions and construction

(1)(a)certificate” has the same meaning as it has for the purpose of Regulation 8(8)(c)(ii) of the European Communities (Milk Quota) Regulations 2000 (S.I. No. 94 of 2000), as amended and extended from time to time. That provision states that, where on an application in writing to the Minister for Agriculture and Food by a co-owner of agricultural lands which are to form part of the assets of a proposed milk production partnership to be exempted from the requirement of being one of the partners in a proposed milk production partnership, the Minister is satisfied that it is proper to do so, he or she may, by certificate in writing, grant such exemption.

chargeable business asset” is an asset which is, or is an interest in, an asset used for the purposes of farming, or a trade, profession, office or employment, carried on by the individual, the individual’s family company or a company which is a member of a trading group of which the holding company is the individual’s family company. Goodwill is specifically included as a chargeable business asset. However, goodwill which is disposed of to a connected company is excluded. Shares and securities and other assets held as investments are excluded, as are shares or securities where the individual remains connected to the company following the disposal. Also excluded are assets on the disposal of which no gain accruing would be a chargeable gain (for example, stock, cash at bank).

family company” is a company in which the individual holds at least 25 per cent of the voting rights or, in a case where the individual and his/her family hold at least 75 per cent of the voting rights, the individual holds not less than 10 per cent of those rights.

family” means the individual’s spouse/civil partner, relatives of the individual and relatives of the individual’s spouse/civil partner, while “relative” means a brother, sister, ancestor or lineal descendant.

‘family of the civil partner’ means any brother, sister, ancestor or lineal descendant of the civil partner.

‘farm partnership’ means a milk production partnership or a registered farm partnership (within the meaning of section 667C)

full-time working director” is a director who has to devote substantially the whole of his/her time to the service of the company in a managerial or technical capacity.

holding company” is a company whose business (disregarding any trade it carries on) consists wholly or mainly of the holding of shares or securities in one or more 75 per cent subsidiaries.

milk production partnership” has the meaning assigned to it by the European Communities (Milk Quota) Regulations 2000 (S.I No. 94 of 2000), as amended and extended from time to time. The European Communities (Milk Quota) (Amendment) Regulations 2002 (S.I. No. 97 of 2002) introduced the concept of milk production partnerships. In general terms, milk production partnerships involve up to 3 existing dairy farmers running their farming business in partnership (the Standard Partnership) or new dairy entrants acquiring milk quota in their own right which can then be produced in partnership in their parents’ holding (the Family Partnership).

payment entitlement” has the same meaning as it has for the purposes of Regulation (EU) No. 1307/2013 of the European Parliament and of the Council of 17 December 2013. A payment entitlement arises under the Single Payment Scheme administered by the Department of Agriculture, Food and the Marine.

qualifying assets” includes —

  • the chargeable business asset of the individual which (apart from tangible movable property) he/she has owned for a period of at least 10 years ending on the date of the disposal and which have been his or her chargeable business assets throughout that 10 year period,
  • shares or securities held for at least the 10 year period ending with their disposal in a company which has been —
    • a trading or farming company and the individual’s family company, or
    • a member of a trading group of which the holding company is the individual’s family company,

    during at least the 10 year period ending with the disposal, and the individual has been a working director of the company for at least 10 years during which he/she has been a full-time working director for at least 5 years,
  • payment entitlements, where they are disposed of at the same time and to the same person as land, to the extent that the land would support a claim to payment in respect of those payment entitlements,
  • land and machinery or plant owned by the individual for at least 10 years ending with the disposal which land —
    • was used throughout that period for the purposes of the individual’s family company (or member of the trading group), and
    • is disposed of at the same time and to the same person as the shares concerned,
  • land leased under the Scheme of Early Retirement from Farming, where for a period of not less than 10 years prior to the land being leased it was owned by the individual claiming relief and used by him or her for the purposes of farming throughout that period,
  • land which was let during the 5 year period prior to its disposal under a compulsory purchase order provided that, prior to its first letting, it was farmed for 10 years by the person making the disposal, and
  • land which was let at any time during the 25 year period prior to its disposal and which, prior to its first letting, was farmed for a period of not less than10 years by the individual making the disposal and:
    • the disposal is to a child (within the meaning of section 599) of the person concerned or,
    • the disposal is to an individual other than a child of the disponer and takes place on or before 31 December 2016 – and the land was let under conacre, or
    • the disposal is to an individual (other than a child as defined) and the land has been leased to an individual (other than under conacre) for the purposes of farming during the relevant 25-year period and each letting of the land is for a period of not less than 5 consecutive years, though not necessarily to the same individual.
      Where land had been let under one or more conacre agreements before 31 December 2016, this will not affect entitlement to relief under this section, provided the land is let for a period of not less than 5 years commencing on or before 31 December 2016.

the Scheme” means the Scheme of Early Retirement from Farming (Council Regulation (EEC) No. 2079/92 of 30 June 1992, Council Regulation (EC) No. 1257/99 of 17 May 1999 or Council Regulation (EC) No. 1698/2005 of 20 September 2005).

trade”, “farming”, “profession”, “office” and “employment” have the same meanings as in the Income Tax Acts.

trading company” is a company whose business consists wholly or mainly of the carrying on of one or more trades or professions.

trading group” is a group of companies consisting of a holding company and its 75 per cent subsidiaries, the business of whose members taken together consists wholly or mainly of the carrying on of one or more trades or professions.

75 per cent subsidiary” has the meaning set out in section 9.

(1)(b) Where a holding company would be a family company but for the fact that the individual had made a disposal of shares in the company to a child of the individual (or to certain nieces or nephews – see section 599) in the period from 6 April, 1987 to 5 April, 1990, the company is treated as a family company for the purposes of the relief.

(1)(c) References to the disposal of the whole or part of an individual’s qualifying assets include the disposal of the whole or part of the assets provided or held for the purposes of an office or employment by the individual exercising that office or employment.

(1)(d) In determining, for the purposes of the definition of “qualifying assets”, the period of ownership of an asset and the period for which a directorship was held —

  • the period of ownership of a spouse or civil partner of an individual is treated as if it were the period of ownership of the individual and, where a spouse or civil partner of the individual has died, the period of use of an asset by the deceased spouse or civil partner is treated as if it were the period of use of the asset by the individual,
  • the period of ownership of old assets which have qualified for roll-over relief under section 597 is treated as if it were the period of ownership of the new assets acquired in pursuance of that section,
  • the period for which the individual was a director or, as the case may be, a full-time working director of a company which is —
    • a company that was treated as being the same company as the relevant company for the purposes of section 586, or
    • a company involved in the same scheme of reconstruction or amalgamation under section 587 with the relevant company,

    is taken into account as if it were a period during which the individual was a director of a “relevant company”,
  • the period of use of land by an individual as a partner in a farm partnership is treated as if it were a period of use by the spouse or civil partner of that individual where the spouse or civil partner —
    • is a co-owner of the land,
    • used the land for a period ending on the date the farm partnership commenced, and
    • had received a certificate from the Minister for Agriculture and Food exempting him or her from becoming a member of the partnership.
  • where the qualifying assets are shares or securities in a family company which were received in exchange for the transfer of a business to the company for which relief under section 600 was obtained, the period of ownership of the business assets so exchanged is treated as the period of ownership of the shares or securities in the company.
  • the period immediately before death during which the deceased spouse or civil partner of the individual was a full-time working director is treated as the individual’s own period as a full-time working director.

(1)(f) Goodwill, and shares or securities referred to in clauses (II) and (III) in the definition of ‘chargeable business asset’, will be treated as chargeable business assets where it would be reasonable to consider that a disposal of such assets was made for bona fide commercial reasons and did not form part of a tax avoidance arrangement.

The relief

(2)(a) – (c) The relief applies where an individual, who is at least 55 years of age at the time of disposal, disposes of the whole or part of his/her qualifying assets.

Where the consideration for the disposal is not more than €750,000, relief is given in respect of the full amount of capital gains tax chargeable on the disposal. In the case of disposals on or after 1 January 2014 by individuals aged 66 years or over, the €750,000 limit will be reduced to €500,000.

Where the consideration exceeds €750,000, marginal relief applies so as to limit the amount of tax chargeable on the disposal to one-half of the difference between the amount of the consideration and €750,000.

Example

Consideration for disposal

€755,000

Chargeable gain (say)

€20,000

Tax at 30%

€6,000

Marginal relief (€755,000 – €750,000) ÷ 2 limits the tax to

€2,500

(2)(d) For the purposes of computing marginal relief, the amount of the tax chargeable on the gain is the amount of tax which would not have been chargeable but for the gain. That amount of tax is the difference between the tax which would have been chargeable on all gains in the year in question, including the gains on the qualifying assets, and the tax on all gains excluding the gains on those assets.

(2)(A) The entitlement to relief will not be affected by the fact that solar panels are installed on land which is suitable for farming, where the area of the land on which the solar panels are installed does not exceed half the total area of the land concerned. In this context, a solar panel means ground-mounted equipment used to capture solar energy and convert it into electrical energy, together with ancillary equipment used to harness, store and transfer the electrical energy.

(3) The amounts of the consideration on the disposal of qualifying assets are to be aggregated and the aggregate figure is to be used as the base for the calculation of the relief. Only disposals of qualifying assets are to be taken into account – any other assets disposed of are outside the scope of the relief and are to be separately charged.

(3A) Relief applies in respect of compensation made under the scheme for the decommissioning vessels implemented by the Minister for Agriculture, Fisheries and Food in accordance with Council Regulation (EC) No. 1198/2006 of 27 July 2006. In order to qualify for relief, the person who is entitled to the compensation must have owned and used the fishing vessel for the purpose of fishing for a period of 6 years before receiving the compensation and must be at least 45 years of age at that time. [This provision applies to disposals made on or after 1 May 2008 – came into effect by Ministerial Order.]

(4) Where there is a disposal of shares or securities of a family company, only a certain amount of the consideration for the disposal is taken into account for the purposes of the threshold for the relief of €750,000 as set out in subsection (2). Essentially, only the proportion of the consideration which relates to the company’s or, as the case may be, the trading group’s chargeable business assets is taken into account for the purposes of the relief.

(4)(a) Thus, in the case where the family company is not a holding company, the proportion of the sale proceeds on the disposal of the shares or securities to be measured against the relief threshold of €750,000 is the amount equal to —

Sale of proceeds of shares

x

Value of company’s chargeable business assets

Value of total chargeable assets of company

(4)(b) In the case where the family company is a holding company, the proportion of the sale proceeds on the disposal of the shares or securities to be so measured is the amount equal to —

Sale of proceeds of shares

x

Value of chargeable business assets of trading group of which the holding company is the family company

Value of total chargeable assets of trading group

The liability to tax on any gains calculated by reference to the balance of the consideration is not affected.

(5) For the purposes of the apportionment rules of subsection (4), every asset is a chargeable asset except one on the disposal of which by the company or member of the trading group, as the case may be, at the time of the disposal of the shares or securities no gain arising would be a chargeable gain.

(6)(a) The threshold limit of €750,000 is a lifetime limit for disposals of qualifying assets on or after 6 April, 1974 made at a time when the individual was at least 55 years of age. Thus, relief for any year is to be computed as if such disposals for that year and earlier years had all been made in that year.

(6)(b) In effect, where the threshold limit of €750,000 is exceeded, any earlier relief given may be adjusted by means of assessment or amended assessment. In accordance with self assessment principles, any taxpayer affected is required to make a full and true return – which includes details of the disposal and the necessary self-assessment to withdraw any excess relief previously claimed.

(6)(c) For the purposes of subsection (6), a part disposal of qualifying assets between spouses/civil partners is to be taken into account at market value and section 1028(5) or section 1031M(3) (which would otherwise treat such a disposal on a no gain/no loss basis) does not apply.

It should also be noted that the proceeds of any disposal qualifying for relief under section 599 (disposals within family of business or farm) are not taken into account in calculating the €750,000 lifetime threshold limit (see section 599(5)).

(7) The relief also applies in the case of capital distributions received by an individual in the course of the dissolution or winding-up of a family company in the same manner as if the individual had disposed of the shares or securities in the company. However, the relief does not apply where the distribution is in specie of chargeable business assets.

(7A) The receipt by an individual of a payment made by a company on the redemption, repayment or purchase of its own shares which is not treated as a distribution for the purposes of Chapter 2 of Part 6 will come within the scope of the relief and will, therefore, be taken into account for the purpose of the €750,000 threshold.

(7B) An individual will be deemed to be connected with a company where the individual enters into arrangements, the main purpose, or one of the main purposes, of which is to secure that they are not connected with the company for the purpose of the connected party exclusions in clauses (II) or (III) in the definition of “chargeable business asset”.

(7c) & (7D) The proportion of a chargeable gain which qualifies for relief may be restricted where an individual transfers a business to a company pursuant to section 600. Relief will not be available in respect of the proportion of the gain which relates to non-share consideration received out of the assets of the company in respect of the disposal. However, the restriction will not apply where it would be reasonable to consider that the disposal is made for bona fide commercial reasons and does not form part of a tax avoidance arrangement.

(8) The relief will only apply to a disposal of qualifying assets where it is made for genuine commercial reasons and its sole or main purpose is not the avoidance of tax.

Relevant Date: Finance Act 2020