656 Farming: trading stock of discontinued trade

Summary

This section provides for a special method of valuing farm stock which is transferred to another farmer by a farmer who is ceasing farming. The parties to the transfer have the option of electing to have the stock transferred at its book value (instead of at market value which would be the normal valuation used).

Under the terms of section 89, trading stock which is transferred on the cessation of a trade – otherwise than on a sale or a transfer for valuable consideration – must be valued at market value. This can give rise to a significant additional income tax liability for the farmer who is retiring. For example, a retiring farmer who has trading stock with a book value of, say, €50,000 transfers this stock to his/her successor for no consideration. If the market value of the stock was, say, €80,000, this is the figure used in computing his/her trading profits on cessation and he/she is, therefore, deemed to have made a taxable profit of €30,000 even though the stock is gifted to the successor. As a result of section 656, however, the parties involved in the transfer have the option of electing to have the farming stock transferred at its book value, thereby cancelling the profits that would otherwise have arisen to the transferor.

Details

Definition

(1) “specified return date for the chargeable period” has the meaning set out in section 950.

Transfer of trading stock of a trade of farming

(2) Where trading stock of a trade of farming is transferred by a farmer to another farmer, both the transferor and the transferee may jointly elect —

• to have the “market value” provisions of section 89(2)(b) set aside, and
• instead, to have the stock valued at book value.

Any such election must be made in writing on or before the specified return date for the chargeable period in which the transfer takes place.

Relevant Date: Finance Act 2021