Agricultural Relief

Overview

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.

Agricultural relief gives a 90 percent reduction in the taxable value of the property/assets concerned. There is a  90 percent  reduction in  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 €335,000 threshold for children.

The individual must be a qualifying farmer in order to avail of 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 was formerly not required. Since 2015, the relief is limited mainly to active farmers as defined.

If the property is sold or disposed of within six years , the relief is withdrawn unless the proceeds are reinvested in more agricultural property.

Agricultural Property

The inheritance or gift must consist of agricultural property at the date of the gift or inheritance and at the valuation date.

Agricultural  consists of

• agricultural land, pasture and woodland situated in the State, EU or UK
• 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,
• farm machinery, livestock and bloodstock on agricultural land
• farm payment entitlements
• land on which solar panels and additional equipment are installed; the area of land cannot be more than half of the land included in the gift or inheritance.

The former requirement that the land must be situated in the State has been amended so that it may also be situated in the EU or the UK.

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 also 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 may allows the exemption to machinery, livestock and bloodstock situated on other agricultural lands.

 Qualifying Farmer

The person must qualify as a farmer to obtain the relief.  A ‘farmer” is defined as an individual, 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.

This test applies to the person’s assets after the gift or inheritances. It applies on the valuation date. Therefore, 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.

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). Debts and encumbrances are allowable against an individual’s off-farm dwelling in deciding whether or not an individual qualifies as a ‘‘farmer’’. 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.

Farming Requirements

Formerly, in contrast with the business relief, the farmer need not actually conduct the farming business on the property. Finance Act 2014 provided a further requirement to limit agricultural relief to individuals who actively farm agricultural property themselves or who lease agricultural property on a long-term basis to active farmers. This applies in relation to gifts or inheritances taken on or after 1 January 2015.

A qualifying farmer must be

•  the holder of any of certain agricultural qualifications set out in the Stamp Duties Consolidation Act  , or who achieves such a qualification within a period of 4 years commencing on the date of the gift or inheritance or
• 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

The qualifying farmer must

• 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 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 above conditions

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.

Clawback of Relief

The relief will be clawed back 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.

Where a donee, successor or lessee ceases to qualify as a qualifying farmer within the period of 6 years commencing on the valuation date of the gift or inheritance, otherwise than on the death of the donee, successor or lessee, the relief is lost and clawed back. Where the date of the gift or inheritance and the valuation date are on or after 1 January 2015 relief may be withdrawn if the beneficiary:

• no longer farm the property for at least 50% of his or her  working hours or
• does not farm the property on a commercial basis for at least six years from that date

All or, as the case may be, part of the agricultural property shall  be deemed to be property comprised in a gift or inheritance that is not agricultural property. The taxable value of the gift or inheritance shall be determined accordingly and tax shall be payable accordingly.

The 80% test is a one off test that applies on the valuation date. It is not subject to clawback.

Clawback Issues

Finance Act 2023 address a number of inconsistencies and anomalies which have been identified in the provisions providing for the clawback of CAT agricultural relief and business relief. CAT legislation provides for a number of reliefs and exemptions from CAT, including CAT agricultural relief and business relief. These reliefs operate by reducing by 90 per cent the market value of qualifying agricultural property and the taxable value of relevant business property for CAT purposes.

The 2023 amendments:

• Bring clarity to the clawback trigger events for CAT agricultural relief and business relief purposes,
• Align the clawback for CAT business relief more closely to that of CAT agricultural relief,
• Change the commencement of the clawback period for both CAT agricultural reliefs and business reliefs to the valuation date rather than the gift or inheritance date,
• Provide additional clarity to the pay and file obligations for a taxpayer where CAT agricultural relief or business relief is clawed back, and
• Make other minor technical changes to the CAT agricultural relief provisions.

Reinvestment in Year

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.

It is not necessary that reinvestment is made in the same type of agricultural property. For example, the proceeds from the sale of livestock could be reinvested in land or machinery without losing the relief.

Development Land

For gifts and inheritance taken before 2015, there is a further clawback in respect of the development potential, if any. It applies up to 10 years.

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.

Anti-Avoidance

The  valuation date is the date at which the beneficiary must qualify to be a farmer within the above definitions. See the separate section  in relation to the valuation date.

A  person might be in a position to take steps to secure that he or she qualifies as a farmer prior to the valuation date. The legislation seek to prevent individuals meeting the 80% test by the temporary or technical disposal of assets. Certain assets are deemed to remain as belonging to the person claiming the relief.

A beneficiary is deemed to hold an asset to which he is entitled 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.

A gift to a spouse may is not subject to the anti-avoidance provisions provided that it is an absolute gift

Condition to Invest

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 former condition that an individual must be resident in the State for 3 years after the date of the gift or the inheritance was removed in 2012  in order to comply with EU law. The amendment applies to gifts and inheritances taken on or after 8 February 2012.

Business Relief

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;

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

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.