Agricultural Relief

Agricultural Relief, if applicable, can provide up to 90% relief on gifts/inheritances of relevant agricultural property.

Since the 20^th November 2008 Agricultural Relief applies to agricultural property situate within an EU Member State. In relation to gifts/inheritance, prior to the 20^th November 2008, it only applied to agricultural property in Ireland. The relief is not a full relief from inheritance tax. It is relief in the form of a deduction of 90% from the market value of the agricultural property. In other words, the beneficiary can reduce the value of the relevant gift/inheritance of agricultural property by 90% of its value for the purposes of calculating inheritance tax.

For a beneficiary to qualify for this relief certain criteria need to be complied with:

1. The property comprising of the gift/inheritance must be agricultural property at the date of the gift /inheritance.
2. The beneficiary must be a ‘farmer’ at the valuation date (which in general terms means the date the property is valued).

What does “agricultural property” mean?

• Agricultural land, woodland situate in a EU Member State after the 20^th November, 2012.
• Farm house, but note that a farm house by itself without the land is not considered agricultural property.
• Farm buildings, farm houses and farm machinery
• Livestock and bloodstock on the land but note that a gift/inheritance of livestock and bloodstock by itself without the land, is not agricultural property.
• Woodland, crops, trees NB must be growing on the land
• Payment entitlements-single farm payment entitlements.

Land on which solar panels are installed is regarded as agricultural land for the purposes of the definition of agricultural property provided that the area of land occupied by the solar panels and ancillary equipment does not exceed half of the land comprised in the gift or the inheritance.

What does “a farmer” mean?

It should be noted that it is not the everyday definition of a farmer that applies here. In order to be able to benefit from the relief, a farmer is a person who can show that not less than 80% of their assets, after receiving a gift, comprises of agricultural property. It is a relief that doesn’t automatically apply, it must be claimed. It must also be demonstrated to the Revenue Commissioners that the individual passes the ‘farmer’ test.

The best way to show this is to give an example.

Paddy Barns Junior receives an inheritance from his father of a farm worth €1,000,000, machinery worth €100,000 , livestock worth €75,000 and entitlement of €25,000.

Paddy Barns Junior bought a house two years prior in Dublin as an investment worth €300,000 which has a mortgage worth €280,000, and he also has a car worth €10,000.

Farmer Test = Total Agricultural Inheritance ÷ by Total Combined Assets x by 100.

In the above example, Paddy Barns Junior’s percentage agricultural assets after the inheritance is 97.5%.

Paddy is therefore considered a ‘farmer’ for the purpose of the relief.

It is important to note that the relief granted can be clawed back or partially clawed back, e.g. if the agricultural property is sold within six years from the date of the gift/inheritance. If it is sold, the entire proceeds of the sale must be invested in another agricultural property. Interestingly, there is no requirement for the beneficiary to farm the land just simply not to dispose of it. It should also be noted that the claw back doesn’t apply to the disposal of crops, or farm animals.

Helpful Tip : A farmer who is considering willing his farm and money to his successor should establish that this person will be eligible for agricultural relief after receiving the gift or inheritance. Planning ahead may avoid a substantial tax liability in particular if some/or all of the money is converted to agricultural assets prior to receiving the gift or inheritance.

Single Farm Payment

It is extremely important that if you have a Single Farm Payment entitlement that it is dealt with in your Will.

Since the start of 2005, you can transfer/sell your Single Farm Payment entitlement with or without the land. If you do not deal with the Single Farm Payment in your Will it will fall to the residue of your estate. If you have no residuary clause, it will be dealt with under the Rules of Intestacy. Single Farm Payments are treated as agricultural property for Inheritance Tax (CAT) purposes and can benefit from the relief provided the criteria for obtaining the relief is met.

Note: as and from the 8^th February 2012 the beneficiary is no longer required to remain resident in the State for the three years immediately following the year in which the valuation date falls to retain the benefit of the relief.

For further information, or to discuss any aspect of farming law, please Contact Us for a consultation