From July 1, sellers of agricultural land do not have to pay income tax when selling land to farmers

From July 1 of this year, personal income tax requirements for the seller of agricultural land have been relaxed. The amendments to the law provide for a relaxed regime for two years. Capital tax is not payable even if the sole property is sold. If the agricultural land is purchased by a farmer, the seller of the land will not have to pay personal income tax (PIT) on the income from the sale of the land.

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The Law “On Personal Income Tax” provides that the personal income tax rate 15% is applied to income from the sale of real estate. Income from capital gains is taxable. Income from the sale of real estate is determined by subtracting the purchase price and the value of investments made in real estate during the ownership of the real estate from the sale price. There are a number of cases when tax is not payable.

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Law 11.⁷article determines special rules for determining income from the alienation of an agricultural enterprise or agricultural land, as well as the criteria that, if met, do not require capital gains tax to be paid on the income obtained when selling agricultural land. Part 3 of this Article provides that income from the alienation of real estate that is agricultural land by purpose of use and that is met is not subject to tax. everyone further conditions:

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1) ownership rights to real estate are acquired as a result of its alienation by the owner of a farm, a person registered in the Enterprise Register as a commercial company, individual merchant or farm or in the State Revenue Service – as a performer of economic activity;

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2) in at least one taxation period out of the last three pre-taxation periods, more than half of the income from the economic activity of the person referred to in Paragraph 1 of this Section, but not less than 2,845.74 euros per year, consists of income from agricultural activity, or this person receives state or European Union support payments for agriculture and rural development as a young farmer.

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Agricultural land seller – the payer meets one of the following criteria:

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1) is a person who carries out agricultural activities and meets the criteria set out in Paragraph 2 of this Article,

2) is a person who, before ceasing agricultural activity upon reaching retirement age, was engaged in agricultural activity and met the criteria set out in Paragraph 2 of this Section before retirement,

3) is a person who, as a former landowner or his heir, in accordance with the law “On land privatization in rural areas"restored ownership rights to land that is agricultural land according to its intended use,

4) is a person who has inherited real estate, which is agricultural land according to its intended use, from the persons referred to in subparagraphs “a”, “b” or “c” of this paragraph,

5) is a person who has received real estate, which is agricultural land by purpose of use, on the basis of a gift agreement from a natural person referred to in subparagraphs “a”, “b”, “c” or “d” of this paragraph, who is related to the recipient of the gift by marriage or kinship up to the third degree Civil law in understanding.

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Adopted by the Saeima on November 6, 2013 amendments The law introduced several adjustments to this article from January 1 of this year, including setting the amount of income from economic activity for the buyer and seller of land at no less than 2,845.74 euros per year.

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At the same time, Paragraph 108 of the transitional provisions of the law stipulates that the law11.⁷article in paragraph 3 of the third part The specified criteria shall not apply from July 1, 2014 to July 1, 2016.

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This means that from July 1, 2014 to July 1, 2016 seller may not meet the established criteria for income from agricultural land not to be subject to personal income tax.

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From January 1 of this year, the Law “On Personal Income Tax” contains a new provision – Article 9 Part 1, paragraph 33.¹Paragraph 1 of this Article states: if the real estate has been owned by the taxpayer (from the date the relevant real estate was registered in the Land Register) for more than 60 months and for the last 60 months until the date of alienation of the real estate, it has been the taxpayer's only real estate, the income from the sale of the said real estate is not subject to personal income tax.

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So, there is a special regulation for agricultural land transactions, and a two-year income tax holiday from July 1 is provided for any such land transaction. to the seller, but the requirements for who the buyer must be remain (if they are not met, then capital gains tax from the sale of agricultural land will have to be paid).

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Consequently, land sellers may have a question about whether income tax will be payable if a person sells their only property (which is agricultural land) if 11.⁷the criteria of Part 3 of Article (paragraphs 1 and 2 – those set for the buyer) will not be met?

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Head of Public Relations Department of the State Revenue Service Evita Teice-Mamaja stated:

“Income from the alienation of real estate that is agricultural land by purpose of use is not subject to tax if Article 11 of the Law “On Personal Income Tax” is met.⁷The criteria set out in the third paragraph of Article 11. From 1 July 2014 to 1 July 2016, it is not assessed whether the land seller meets the specified criteria.

Income from the sale of real estate is also not subject to tax if the real estate, including agricultural land, has been owned by the taxpayer (from the date the relevant real estate was registered in the Land Register) for more than 60 months and has been the taxpayer's only real estate for the last 60 months until the date of alienation of the real estate..

Thus, if agricultural land is a person's only property registered in the land register for the past 60 months, then upon selling this land, the income is not taxed, regardless of whether the land buyer meets the criteria set out in the law or not."

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At the plenary session of the Saeima on November 6, 2013, the Parliamentary Secretary of the Ministry of Agriculture, Edvards Smiltēns, describing the proposed amendments, noted two main priorities: to prevent our main resources, which are land and forests, from falling into the hands of foreigners, so that they remain in the hands of local people, as well as support for production - for those farmers who produce something. The representative of the Ministry emphasized the essence of the new regulation: from July 1, 2014 to July 1, 2016, any seller of agricultural land will be able to receive an exemption from personal income tax if he sells this land to a farmer who will use it purposefully, involving it in the production of agricultural products.

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Author: Lidija Darziņa

Source: LV portal