In the last month, I had 3 meetings where the inheritance of farmland was the main concern. The parcels of land were more than 80 acres in all cases. Assuming a value of between €10,000 and €15,000 an acre the figures are high. So, Agricultural relief is vital for you to check out. This week we will look at
- The relief
- Agricultural Property
- Conditions
- Farmer Test
- Active Farmer
- Summary
What is the Relief
The market value of agricultural property reduces by 90%. It can apply to both gifts and inheritances. Tom Ryan is sick of milking cows and wants to retire from farming. He plans to gift 100 acres of his land to his son Billy who will farm the land. The value of the land is €1,300,000
| Land Value | €1,300,000 |
| Agricultural Relief 90% | €1,170,000 |
| Taxable Value | €130,000 |
The current gift/inheritance tax threshold from parent to child is €335,000. As the taxable value of €130,000 is less than the threshold then Billy doesn’t pay any gift tax. If there was no Agricultural relief his gift tax bill would be
| Land Value | €1,300,000 |
| Less Parent/child threshold | €335,000 |
| Taxable Value | €965,000 |
| Tax Payable 33% | €318,450 |
While Billy has some savings, he wouldn’t have enough to pay this liability. He would likely have to sell some of the land to pay the tax. This could be counterproductive as it would break up the farm and be less profitable for him.
What is Agricultural Property
It includes
- Agricultural land, pasture and woodland situated in the EU
- Crops, trees, and underwood growing on the land
- Farm buildings and dwelling houses (and the land on which they are situated)
- Farm machinery situated on the land
- Livestock and bloodstock on the land
- EU single farm payment entitlements
- Milk quotas which transfer with agricultural land
Conditions to Qualify
To qualify for the relief there are 3 conditions that you must meet
- The property you get must be agricultural property at the date of death or the date of the gift. It must also be agricultural property on the valuation date – see below
- The beneficiary [person who gets the gift or inheritance] must meet the ‘80% agricultural property’ test. This is known as the ‘Farmer test’. This is on the valuation date and after taking the property/assets.
- The beneficiary must satisfy the various ‘active farmer’ requirements.
80% Farmer Test
This is a test that you must meet on the valuation date. For a gift, the valuation date is the date of the gift. For an inheritance, the valuation date is usually the date of the grant of probate or administration. This is the date you become legally entitled to the property.
As well as the land Tom Ryan is glad to pass over 80 cows to Billy. These are worth €140,000. Billy will buy machinery from Tom for €100,000 so Tom can clear his loans. Billy’s only other assets are a property he rents out which is worth €180,000 and savings of €20,000. At the date of the gift, Billy’s total assets are
| Land Value | €1,300,000 |
| Livestock – Cows | €140,000 |
| Total Agricultural Property | €1,440,000 |
| Rental Property & Cash | €200,000 |
| Total Assets | €1,640,000 |
Billy’s agricultural assets make up 87.8% of his total assets and so he meets the farmer test. If the rental property and cash were worth €400,000, he wouldn’t meet the farmer test. In that case, his agricultural assets would be 78.26% and would be below the 80% needed. As he meets the test the value of the agricultural property will reduce by 90% to €144,000. Assuming the parent child threshold of €335,000 is available in full then he wouldn’t have any gift tax liability.
Active Farmer
Are these words tongue in cheek? Any farmers that I know are very active. Too much work and not enough bodies to do it. There are 3 ways to be an active farmer
- Farm the land as an active farmer
- Be a qualified farmer and farm the land
- Lease the land to an active farmer or to a qualified farmer
A beneficiary must farm the land for 6 years from the date of the gift or the valuation date. It can be a case that the beneficiary can’t start farming immediately. This could be due to existing work commitments or personal circumstances. In this scenario, Revenue will accept that the 6-year period can start from the time that farming is taken up.
Rather than farming personally, the beneficiary can lease the agricultural property to a farmer. The farmer must farm the land for 6 years from the date of the gift or the valuation date. It could be a case of the beneficiary farming the land for 2 years and then letting the land to a farmer for 4 years or more. Or the opposite, letting the land to a farmer and then farming him/herself. The key is that there is active farming on the land for 6 years after the gift or inheritance.
A beneficiary or a lessee may not have an agricultural qualification. In those cases, he/she must farm the agricultural property for 50% of his/her normal working time. Revenue accepts normal working time as 40 hours per week. So, farmers with an off-farm employment can qualify for agricultural relief where they work on the farm for at least 20 hours per week.
Summary
The purpose of this blog is to give you an idea of the basics of this relief. The relief is very valuable. But all is not lost if you don’t qualify for it. There is Business Property Relief if Agricultural relief doesn’t work. We will delve further into some tips and traps next week, so stay tuned.
Need help to know if this relief works for you? If so, Start here
