599 Disposals within family of business or farm

Summary

Whereas section 598 gives a general relief from capital gains tax for the disposal, by an individual 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 a disposal is to a child, as defined in the section, of the individual or of that individual’s civil partner. Where an individual aged 55 years or more makes a disposal of qualifying assets to their child, or a child of that individual’s civil partner, at any time up to and including 31 December 2024 there is no limit to the consideration to which relief under this section applies – however, where the individual making the disposal in the period from 1 January 2014 to 31 December 2024, inclusive, 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. For disposals made on or after 1 January 2025, a lifetime limit of €10million applies to the market value of the qualifying assets to which relief under this section applies; in addition, the existing €3million cap will apply to disposals of qualifying assets by individuals aged 70 years and over from 1 January 2025 onwards.

The capital gains tax liability which arises to an individual on the transfer of qualifying assets to a child on or after 1 January 2025, the value of which exceeds the €10million lifetime limit, may be deferred by the individual making the transfer. Should the child dispose of the assets within 12 years of the transfer, then the child becomes liable for the individual’s deferred capital gains tax liability, as well as any capital gains tax liability which arises to the child on their subsequent disposal of the assets.

For the purposes of this section, the meaning of “child” is extended to include a child of a deceased child, as well as 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 individual 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.

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 – this clawback applies in respect of the relief claimed by an individual on any transfer of qualifying assets to a child. That is, the clawback applies to relief claimed on transfers of qualifying assets to which limits on relief do not apply or transfers of qualifying assets, which are subject to such limits, but the value of assets transferred do not exceed such limits. The clawback applies 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 individual (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.

A clawback of relief does not apply to the deferred capital gains tax liability arising on the transfer of qualifying assets, on or after 1 January 2025, to a child, the value of which exceeds the €10million lifetime limit. In this instance, the deferred tax is subject to a retention period such that, in the event the child disposes of such assets within 12 years of the date of transfer, the deferred capital gains tax, which would have been charged on the individual, 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.

An individual who seeks to claim relief and/or defer the capital gains tax under this section must do so in the tax return which they are legislatively obliged to deliver to the Revenue Commissioners for the year of assessment in which the disposal to which relief under this section applies takes place.

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, as well as 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 at any time up to and including 31 December 2024, the capital gains tax chargeable on any gains arising on the disposal is fully relieved. An upper limit of €3million will apply to disposals made in the period 1 January 2014 to 31 December 2024, inclusive, by individuals aged 66 or over. 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 on or after 1 January 2025, a lifetime limit of €10million applies to the market value of such assets to which relief under this section applies; in addition, the existing €3million cap will apply to disposals of qualifying assets by individuals aged 70 years and over from 1 January 2025 onwards.

(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.

(2a) The consideration on the disposal of qualifying assets by individuals aged 66 or over in the period 1 January 2014 to 31 December 2024, inclusive, will be aggregated for the purpose of the €3million limit on the relief available to such individuals.

(2b) Where an individual, having reached the age of 66 or more, disposes of qualifying assets to their child in the period 1 January 2014 to 31 December 2024, inclusive, and makes further disposal(s) of qualifying assets to a child in the period 1 January 2025 onwards, the consideration on the disposal of qualifying assets in both periods must be aggregated for the purpose of the €10million lifetime limit on the relief available to such individuals from 1 January 2025 onwards. In aggregating the consideration for disposals of qualifying assets to a child in both periods, it may be that the consideration for such disposals in the period 1 January 2014 to 31 December 2024, inclusive, exceeds the €3million cap; in such circumstances, and only for the purpose of aggregation in these circumstances, the consideration for such disposals is deemed to be €3million.

(2c) The consideration on the disposal of qualifying assets by individuals aged 55 or over in the period 1 January 2025 onwards will be aggregated for the purpose of the €10million limit on the relief available to such individuals.

(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 in turn disposes of those assets, the relief given is subjected to a clawback. The clawback applies in respect of the relief claimed by an individual on a transfer of qualifying assets. That is, the clawback applies to relief claimed on transfers of qualifying assets to which limits on relief do not apply or transfers of qualifying assets, which are subject to such limits, but the value of assets transferred do not exceed such limits. The clawback operates to withdraw the relief not from the original disponer who benefitted from the relief, but by way of an assessment on the child to whom the assets were disposed. In effect, the capital gains tax which would have been charged on the original disponer (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.

Deferral of liability

(4A) Subsection (4A) provides for an option for an individual to defer the capital gains tax liability arising on the transfer of qualifying assets, on or after 1 January 2025, to a child, the value of which exceeds the €10million lifetime limit.

(4A)(a) Paragraph (a) provides for the definitions which are used in subsection (4A). These are;

“deferred capital gains tax” means the amount of capital gains tax arising on a relevant disposal (also defined in paragraph (a)) which is deferred in accordance with paragraph (c). “relevant disposal” means a disposal of qualifying assets, as referred to in subsection (1)(b)(v) of section 599, in respect of which capital gains tax is chargeable, as the value of the assets exceed the €10 million lifetime limit on relief granted under section 599. By virtue of the operation of subsection (1)(b)(v) of section 599, capital gains tax arising in respect of the disposal of qualifying assets on or after 1 January 2025, the (aggregated) value of which are up to €10 million is relieved from capital gains tax in full; capital gains tax arises in respect of the disposal of qualifying assets, the value of which exceed €10 million. “retention period” means the period beginning on the date on which an individual makes a relevant disposal and ending on the twelfth anniversary of that date.

(4A)(b)This subsection applies to relevant disposals made on or after 1 January 2025.

(4A)(c)An individual has the option to make a claim to defer the payment of capital gains tax due on a relevant disposal (i.e., capital gains tax due on the disposal of qualifying assets, on or after 1 January 2025, the value of which exceeds €10million). A claim for deferral under this section must be made by an individual in the tax return that individual is obliged to deliver for the year of assessment in which the relevant disposal takes place, in accordance with the provisions of Chapter 3 of Part 41A of the Taxes Consolidation Act 1997.

(4A)(d)Where a claim is made to defer the payment of capital gains tax arising on a relevant disposal, two possible outcomes are provided for;

1. Where the child to whom the qualifying assets comprised in the relevant disposal were transferred disposes of such assets within 12 years of the date of the relevant disposal, the deferred capital gains tax is crystalised and becomes assessed and charged on the child, along with any capital gains tax arising to the child on their disposal of the assets.
2. Where the child to whom the qualifying assets comprised in the relevant disposal were transferred does not dispose of the assets within 12 years of the date of the relevant disposal, the deferred capital gains tax is no longer due and payable.

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.

(9)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.

(7) The consideration on a disposal of shares or securities of a family company by an individual to a child, in circumstances where the €3million cap on relief in the period 1 January 2014 to 31 December 2024, inclusive, and/or the €10million lifetime limit on relief on or after 1 January 2025, may apply, 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 relevant threshold limits for relief under section 598.

(8) A claim for relief under this section must be made by an individual in the tax return which that individual is obliged to deliver for the relevant year of assessment (i.e., the year of assessment in which a disposal in respect of which relief is claimed under this section is made) in accordance with the provisions of Chapter 3 of Part 41A of the Taxes Consolidation Act 1997.

(9) A claim for relief or deferral of capital gains tax under this section will only apply where the disposal of qualifying assets is made for genuine commercial reasons and does not form part of arrangements or a scheme, the main purpose, or one of the main purposes, of which is the avoidance of tax.

Relevant Date: Finance Act 2024