Revenue Note for Guidance

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Revenue Note for Guidance

599 Disposals within family of business or farm

Summary

Whereas section 598 gives a general relief from capital gains tax for the disposal, by a person who has attained 55 years of age, of certain business assets where the consideration does not exceed €750,000, section 599 gives specific relief where such disposal is to a child of the person or of that person’s civil partner. In that case, there is no limit to the consideration – however, in relation to a disposal on or after 1 January 2014, where the person making the disposal is 66 years or over and the market value of the qualifying assets is over €million, the relief is limited to the gain on an amount of €3million.

The meaning of “child” is extended to include a child of a deceased child, a nephew or niece who has worked full-time in the business for the 5-year period ending on the date of the disposal. It also includes a foster child who was under the care of and maintained at the expense of the person making the disposal for a period of 5 years (or periods which together amounted to 5 years) up to the time such foster child reached 18 years of age, but only if the claim for relief is not based on the uncorroborated testimony of one witness. An upper limit of €3m will apply to disposals on or after 1 January 2014 by individuals aged 66 or over.

Where an individual is disposing of land used for farming to his or her “child” and the consideration for its disposal consists in whole or in part of other land, the individual acquiring this other land will be treated as having acquired the land at the time and for the consideration that the “child” originally acquired it and to have farmed it for the same period that the “child” farmed it.

There is provision for a clawback of the relief where the assets transferred to the “child” are disposed of by the “child” within 6 years of the date of transfer. In any such case, the capital gains tax which would have been charged on the transferor (if the relief had not applied) is assessed and charged on the “child”, in addition to the tax on any gain made by the “child” on his/her disposal of the assets.

Details

Definitions

(1)(a) The definitions in section 598(1) apply for the purposes of this section as they apply for the purposes of section 598.

For the purposes of the relief, “child” includes a child of a deceased child, a nephew or niece of the individual making the disposal who has worked full-time in running or assisting in the running of the business or farm concerned for minimum of 5 years ending on the date of the disposal. It also includes a foster child who was under the care of, and was maintained at the expense of, the individual making the disposal for a period of 5 years (or periods which together amounted to 5 years) up to the time that such foster child attained the age of 18 years, but only if the claim for relief is not based on the uncorroborated testimony of one witness.

The relief

(1)(b) Where an individual who is at least 55 years of age makes a disposal to his/her “child” of all or part of the individual’s qualifying assets, the capital gains tax chargeable on any gains arising on the disposal is fully relieved. An upper limit of €3m will apply to disposals on or after 1 January 2014 by individuals aged 66 or over.

(1)(c) The amount of the relief is the difference between the tax that 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. However, the relief does not affect the computation of gains on the disposal of assets which are not qualifying assets.

(1)(d) Where an individual is disposing of land used for farming to his or her “child” and the consideration for its disposal consists in whole or in part of other land, the individual acquiring this other land will be treated as having acquired the land at the time and for the consideration that the “child” originally acquired it and to have farmed it for the same period that the “child” farmed it.

(2) The consideration on the disposal of qualifying assets by individuals aged 66 or over will be aggregated for the purpose of the €3m limit on the relief available to such individuals where the disposal is made on or after 1 January 2014.

(3) The apportionment rules of section 598(4) apply in determining the amount of the consideration to be taken into account for the purposes of the relief in the case of a disposal of shares or securities of a family company. Essentially, only the proportion of the consideration for the disposal 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.

Clawback of relief

(4)(a) Where relief has been given in respect of a disposal of qualifying assets and, within 6 years of the date of disposal, the “child” disposes of those assets, the relief given is subjected to a clawback. However, the relief is withdrawn not from the original beneficiary (the “parent”) but by way of an assessment on the “child”. In effect, the capital gains tax which would have been charged on the “parent” (if the relief had not applied) is assessed and charged on the “child”, in addition to any tax chargeable on the gain accruing on the “child’s” disposal of the qualifying assets.

In the case of such a disposal that gives rise to a clawback, the “child” making the disposal is required, in accordance with self assessment principles, to make a full and true return – which includes details of the disposal and the necessary self-assessment to clawback relief previously claimed.

Relief not taken into account for section 598 purposes

(5) The consideration for any disposals that qualify for relief under this section is not taken into account in calculating the €750,000 threshold limit for relief under section 598.

Relief under this section may be claimed if all other conditions of the section have been met where a disposal is made to

  • a child of the civil partner of the individual,
  • a child of the deceased civil partner of the individual,
  • a child of the civil partner of a deceased child of the individual, or
  • a child of the civil partner of a deceased child of the civil partner of the individual.

The consideration on a disposal of shares or securities of a family company by an individual aged 66 years or over to a child, is to be aggregated with a disposal of shares or securities by the individual to a company controlled by that same child, for the purpose of calculating the €500,000 threshold limit for relief under section 598.

Footnotes

* in relation to assessments made on or after 1 January 2005 – 10 years for assessments made before that date.

Relevant Date: Finance Act 2020