Advice for Solicitors: Agricultural Relief

Agricultural relief is an important CAT relief on the transfer of agricultural property. 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. 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.

Currently, the farmer test is an asset test and not an occupational test. It is irrelevant whether the beneficiary will actually use the assets for the purposes of farming. The test is applied after taking the current benefit. In other words, the value of the current benefit of agricultural property is included with your son’s other assets to assess whether he is a farmer.  This will change however with affect from 1^st January 2015.

Budget 2015 changes

From the 1st of January 2015, and subject to other conditions, Agricultural Relief will be available only in respect of agricultural property gifted to or inherited by an individual who subsequently uses the property for agricultural purposes for a period of not less than six years or who leases out the agricultural property for not less than six years for agricultural use.

To qualify for the relief the beneficiary or lessee must spend not less than 50 per cent of his or her 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.

The amendment applies in relation to gifts or inheritances taken on or after the 1st of January 2015.

Conclusion

It is important to note that other taxes may arise on the transfer of a family farm. As a result of is agricultural relief and gift tax should not be considered in isolation but rather in conjunction with other tax reliefs such as retirement relief for Capital Gains Tax purposes. Careful tax planning is required in advance of any transfer to ensure that no unnecessary tax liability will arise in relation to same.

If you are unsure as to the application of these reliefs to your own or any of your client’s circumstances, please do not hesitate to contact us.