Agricultural relief: a key tax relief in most farm succession plans

By Michael Fitzgerald

IN my experience, farmers understand the general op- eration of ‘agricultural relief’ but can often misconstrue the practical application.

Here is a list of questions that I commonly receive during a consultation addressing the subject:

What is agricultural relief?

Along with business relief, agricultural relief is one of the most important capital acquisition tax reliefs.

How does it operate?

The market value of a quali-fying property is reduced by 90% when calculating the tax on a gift or inheritance. It does not reduce the value for stamp duty and capital gains tax but other reliefs may be available under those tax heads.

For example, you receive a 15-acre field from an uncle with a value of €200,000. You have a tax-free threshold of €32,500 available on this gift. Agricultural relief can reduce the value of the land b €200,000 to €20,000. The new ‘agricultural value’ is less than the tax-free threshold and no capital acquisitions tax may be payable.

What are the conditions?

There are three main conditions:

1. The property being gifted or inheriting must be agri- cultural property.
2. Satisfy the farmer
3. Satisfy the active farmer

What is agricultural property?

Agricultural property can include farmland, woodland, farm machinery, livestock. bloodstock and BPS payment entitlements. A farmhouse may be agricultural property when transferred with farm- land. Money or other assets gifted or inherited with the condition that they are invested in agricultural property may also qualify as agricultural property.

What is not agricultural property?

Property often mistaken for agricultural property includes:

4. A very small parcel of
5. Shares in a farming com- pany.
6. Fertiliser, feed, harvested crops.
7. A farmhouse without land is not agricultural property when receivd
8. Co-op  and creamery shares

What is the farmer test?

In  spite of  the  name, this condition has nothing to do with farming, but rather is an asset-based test. On the date that you are deemed to receive the  property, 80% of your assets, including the property subject of the gift or inheritance, must be agri- cultural property. Full-time farmers can fail this test while a non-farmer may pass it with ease.

What is the active farmer test?

This test was introduced in2015 with the aim of making agricultural property available to full-time and qualified farmers.

If you wish to claim agricultural relief but are not an ac- tive or qualified farmer then you are required to lease substantially the whole of the gifted or inherited property to an active or qualified farmer.

An active farmer is one that spends 50% of their normal working week farming or alternatively 20 hours a week farming.

A qualified farmer is one who holds a Fetac Level 6 ag- ricultural qualification (com- monly known as a green cert) or other specific qualification such as BAg or veterinary degree.

You are required to meet this condition for a six-year period. There are a number of Revenue concessions in relation to the application of these conditions that address common issues such as receiving land that you wish to farm but is subject to a lease.

Are the conditions different for commercial woodland?

Yes, you do not need to satisfy the farmer test or the active farmer test to qualify for agricultural relief on the value of the standing trees. For ex- ample, if you are receiving 60 acres of forestry with a value of €300,000 which is divid- ed between the value of the standing trees at €240,000 and the land on which the trees stand with a value of €60,000 then the ‘agricultural value’ of this gift is €84,000. The ‘agricultural value’ is the value of the stand trees reduced by 90% (€24,000) and  the value  of  the  land (€60,000). The trees may be felled within six years of the gift or inheritance without impact- ing on the relief.

Are there any other re- laxation of the rules?

Yes, land occupied by solar panels may still be deemed to be agricultural property provided they occupy no more than 50% of the land.

Are there any other exceptions?

Yes, development land may qualify as agricultural property. The period in which a claw back of the relief may arise is extended from 6 years to 10 years in relation to the additional value the land has as a result of the development potential. This additional condition only applies to land with development value when received.

What happens if I fall to meet the relevant conditions after taking the gift or inheritance?

You can suffer a full or partial claw-back of the relief. No interest and penalties should arise if an amending return if filled in a timely manner.

Where land is sold within the first six years and you in- vest some or all the sale proceeds within the 12 months after sale in other agricultural property then the claw-back of the relief may be reduced or eliminated.

If your tenant breaks the lease within the first six years, then Revenue grant a peri- od of 12 months to find new tenant.

Where can I get further information on agricultural relief and other tax matters?

FDC’s tax department in Bandon on 023 8842719, in Skibbereen on 028 21818 and in Bantry on 027 52323.