Agricultural Relief

Since the introduction of capital acquisitions tax, a relatively generous agricultural property relief has been available.  The primary purpose has been to alleviate the inheritance tax burden that might otherwise apply to the inheritance of a family farm.  However, the relief is available regardless of whether the recipient is a full-time farmer regardless of form whom he inherits the farm.

Agricultural relief gives a 90 percent reduction in the taxable value of the property/assets concerned. The individual must be a qualifying farmer in order to avail as a relief.  The main condition is that at least 80 percent of the person’s assets must constitute agricultural property after the acquisition.  Trading as a farmer or operating as such is irrelevant.

If the property is sold or acquired within 6 years and in certain cases 10 years, the relief is withdrawn unless the proceeds are reinvested in more agricultural property.

The agricultural property must consist of

• agricultural land, pasture and woodland situated in the state.
• crops, trees and underwood growing on such land
• farm buildings, farmhouses and mansion houses (together with lands occupied with them) as is of a character appropriate to the property, and farm machinery, livestock and bloodstock and single payment entitlement

The requirement that the land must be situated in the State may be discriminatory under EU laws.

A clawback of relief applies within 6 years in relation to agricultural elements.  A clawback in respect of the development potential, if any, applies up to 10 years.

If the farm has a mansion house, it is regarded as agricultural property provided it is of the character appropriate to the agricultural property. It  does not need to be used for agricultural purposes.

Agricultural property includes farm machinery, livestock and bloodstock on the property.  It must be on the property at the valuation days and the date of inheritance. By concession, the Revenue allows the exemption to machinery, livestock and bloodstock situated on other agricultural lands.

The person must qualify as a farmer to obtain the relief.  A farmer is an individual in respect of whom 80 percent of the gross market value of all property to which he is beneficially entitled in possession after taking possession of the benefit,  is represented by agricultural property.  In order to be a farmer, the person must be a resident in the State for three tax years following the valuation date. There may be issues of discrimination under EU legislation in relation to the requirement for Irish residence

In contrast with the business relief, the farmer need not actually conduct the farming business on the property. The test refers to the gross value of assets.  There is a deduction allowable for debts attaching to the main residence of the beneficiary.  However, apart from this, debts are not excludable.

A beneficiary is deemed to hold an asset to which he is entitled to in the future or under a discretionary trust created by him of which he is an object, the purpose  of which is to artificially deem him to be a farmer by transferring his non-agricultural assets away for a temporary period so as to qualify for agricultural relief at the relevant date.

See separately in relation to the concept of the valuation date.  This is the key date for qualification to farmer within the above definitions, the person may be in a position to take steps to secure that they qualify as a farmer prior to the valuation date. The valuation date will not necessarily be the date of death,  A gift to a spouse may be taken tax-free and is not subject to the anti-avoidance provisions provided that it is an absolute gift.

Where the inheritance or gift consists of agricultural property at the date of the gift or inheritance and the valuation date, the relief taxes the agricultural value. This is the market value by 90 percent of the so-called agricultural value.  The effect is that only the 10 percent is counted for the purpose of the various thresholds, e.g. the €310,000 threshold for children.

Where assets are given with a condition that they be invested in agricultural property, the relief may be available.  The legislation allows the relief where the inheritance or gift is subject to the condition that the whole or part is invested in the agricultural property and this condition is satisfied within 2 years.

In this case, the gift or inheritance is deemed to consist of agricultural property at the date of the gift or inheritance and the valuation date provided the other conditions apply.  Only the invested part will qualify for their relief.

The relief will be disallowed if the land is sold or compulsorily acquired within 6 years and not reinvested in agricultural property.  The reinvestment need not be in the same type of agricultural property. The reinvestment must happen within 1 year.  This applies to each distinct sale.

If an agricultural property fails to qualify for agricultural relief, it may apply for business relief.  Business relief is, however, subject to certain conditions in relation to trading and use as such;

If agricultural property is disposed of within 10 years of the inheritance, the tax is recalculated at the valuation date as if the amount by which the market value exceeded the current use value was not agricultural property.  This provision applies to development property.  Development property is a property whose value exceeds its current use value.

The Finance Act 2012 provides that a farmer for this purpose is an individual at least 80 per cent of whose assets comprise agricultural property after taking the gift or the inheritance. Debts and encumbrances are allowable against an individual’s off-farm dwelling in deciding whether or not an individual qualifies as a ‘‘farmer’’. The amendment ensures that a loan that is secured on an off-farm dwelling will not be allowed as a deduction unless it is used for the purchase, improvement or repair
of that house. The amendment also removes the condition that an individual must be resident in the State for 3 years after the date of the gift or the inheritance in order to comply with EU law. The amendment applies to gifts and inheritances taken on or after 8 February 2012.

Business relief has the effect of reducing the value of the certain qualifying trading business assets by 90 percent for CAT purposes.  The effect of this 90 percent reduction is that a significant amount of property could qualify for exemption from CAT.  Where tax applies the rate is effectively reduced from 33 percent to 3.3 percent.

The conditions for business relief are complicated. Business relief applies to so-called relevant business property.  This covers both business assets and shares in certain small family company as well as assets used for the purpose of the business carried on by the family company or partnership, but not actually owned by the company or partnership.  It may include shares. It may include an interest in the partnership or business.

Agricultural property may qualify for business relief.  This also includes foreign agricultural property.

Finance Act 2014 provides for a further requirement under this definition to target agricultural relief to individuals who actively farm agricultural property themselves or who lease agricultural propertyon a long-term basis to active farmers( This section applies in relation to gifts or inheritances taken on or after 1 January 2015.

‘farmer’, in relation to a donee or successor, means an individual in respect of whom not less than 80 per cent of the market value of the property to which the individual is beneficially entitled in possession is represented by the market value of property in a Member State which consists of agricultural property, and, for this purposes ) no deduction is made from the market value of property for any debts or encumbrances (except debts or encumbrances in respect of a dwelling-house that is the only or main residence of the donee or successor and that is not agricultural property),

an individual is deemed to be beneficially entitled in possession to an interest in expectancy, notwithstanding the definition of ‘entitled in possession’  and property that is subject to a discretionary trust under or in consequence of a disposition made by the individual where the individual is an object of the trust,

A farmer must be

•  the holder of any of certain agricultural the qualifications set out in the Stamp Duties Consolidation Act 1999 , or who achieves such a qualification within a period of 4 years commencing on the date of the gift or inheritance, and who for a period of not less than 6 years commencing on the valuation date of the gift or inheritance farms agricultural property (including the agricultural property comprised in the gift or inheritance) on a commercial basis and with a view to the realisation of profits from that agricultural property,
• for a period of not less than 6 years commencing on the valuation date of the gift or inheritance spends not less than 50 per cent of that individual’s normal working time farming agricultural property (including the agricultural property comprised in the gift or inheritance) on a commercial basis and with a view to the realisation of profits from that agricultural property, or
• leases the whole or substantially the whole of the agricultural property, comprised in the gift or inheritance for a period of not less than 6 years commencing on the valuation date of the gift or inheritance, to an individual who satisfies the conditions in paragraph (i) or (ii).”,

Where a donee, successor or lessee ceases to qualify as a farmer within the period of 6 years commencing on the valuation date of the gift or inheritance, all or, as the case may be, part of the agricultural property shall f), otherwise than on the death of the donee, successor or lessee, be treated as property comprised in the gift or inheritance that is not agricultural property, and the taxable value of the gift or inheritance shall be determined accordingly and tax shall be payable accordingly.”.

Finance Act 2017

Finance Act 2017 deals with agricultural relief in relation to lands used for solar panels. The leasing of agricultural land on which solar panels are installed continue to be treated as qualifying agricultural activity for the purpose of agricultural relief. .Where the lease is entered a new qualifying condition is that the lands used for solar panels must not exceed 50 percent of the land that was gifted or inherited.