Transfer of family farm may qualify for agricultural relief
Q I am an elderly farmer and wish to gift my farm to my son. I keep hearing about agricultural relief but I am unsure as to how this works. Can you please explain?
A Agricultural relief is an important relief on the transfer of a family farm. This is because should you complete the proposed transfer to your son, this will be a gift for tax purposes. Capital Acquisitions Tax (CAT) is a tax levied on all gifts.
If your son can successfully avail of agricultural relief the result would be to reduce the value of the gift by 90% so that in effect he is only deemed to take a gift of 10% of the current market value when calculating any CAT due. Only agricultural property qualifies for the relief. "Agricultural property" is defined as:
- Agricultural land, pasture and woodland situate in the EU and crops, trees and underwood growing on such land;
- Farm houses, farm buildings and mansion houses which are of a character appropriate to the lands occupied with such buildings;
- Farm machinery, bloodstock and livestock on such agricultural land; and
- Entitlements to single farm payments
Even then the relief will only apply to the transfer of agricultural property if the farmer test is met. For the purposes of this relief a "farmer" is an individual in respect of whom not less than 80% of the market value of their property after taking the gift is represented by agricultural property.
In addition to the above conditions, the following conditions also apply to gifts or inheritances taken on or after 1 January 2015. The beneficiary must:
- Farm the agricultural property for a period of not less than 6 years commencing on the valuation date or
- Lease the agricultural property for a period of not less than 6 years commencing on the valuation date. The agricultural property may be leased to a number of lessees as long as each lease and lessee satisfies the conditions of the relief.
In addition, the beneficiary (or the lessee, where relevant) must:
- Have an agricultural qualification (a qualification of the kind listed in Schedule 2, 2A or 2B of the Stamp Duties Consolidation Act 1999) or
- Farm the agricultural property for not less than 50% of his or her normal working time.
The agricultural property must also be farmed on a commercial basis and with a view to the realisation of profits.
As stated above, the relief operates to reduce the market value of agricultural property by 90%. This reduced value is known as the "agricultural value" of an asset. The agricultural value is then substituted for the market value for the purposes of arriving at the taxable value. Where agricultural relief applies, any liabilities, costs and expenses to be deducted from the value of the agricultural assets or consideration paid for the assets must also be reduced by 90%.
Where agricultural relief has been claimed in relation to a gift or inheritance, a claw back of the relief claimed will arise if any part of the agricultural property (other than crops, trees and underwood) is disposed of within six years of the transfer.
If you are unsure as to the application of this relief to your own circumstances, please contact George Skelton, Senior Tax Manager on 053 9170507 or email firstname.lastname@example.org