How to avoid costly mistakes when claiming Agri Relief
Published 13/07/2016 | 02:30
Qualifying for Agricultural Relief is absolutely essential for the vast majority of farm transferees.
The effect of the relief is to reduce the value of farm assets being transferred by 90pc, thereby minimising or eliminating any liability to Capital Acquisition Tax on the part of a recipient of agricultural property.
Until 2014, qualifying for Agricultural Relief was a pretty straight forward matter in that the main requirement was that after receiving the gift or inheritance, 80pc of your gross asset value was comprised of agricultural assets.
However, the 2014 Finance Act introduced changes to Agricultural Relief that placed a much greater emphasis on ensuring that farms were being farmed by active or qualified farmers.
These changes are far from simple to interpret and the consequences of getting them wrong could be very costly.
I will deal with the main qualifying conditions in this article which also deals with the sort of queries I receive on a daily basis on the subject.
Property that qualifies as agricultural property includes:
Woodlands (but not harvested timber)
Dwelling houses that are proportionate in size and character to the requirements of the farming activities
Farm machinery situated on the property
Livestock and bloodstock situated on such property;
Basic Payment entitlements.
It is agricultural land that determines whether the relief applies. A building, without the land is not agricultural property, neither is a farmhouse transferred to a farmer on its own.
However where both land and farmhouse are transferred to the same beneficiary at different times, the two combined become agricultural property for the purpose of qualifying for Agricultural Relief for any subsequent gifts or inheritances.
But the house was not agricultural property at the date of the gift or inheritance so it does not qualify.
This point is worth noting for farmers who transfer the land to a son or daughter but hold on to the farmhouse with the intention of it going to that son or daughter after their death.
Minimum land area
The purpose of Agricultural Relief is to benefit agricultural property, not to give relief to a private residence with agricultural activities attached.
In general Revenue considers that small parcels of land of less than two acres may be too small to constitute agricultural property.
The 'active farmer' test
In relation to gifts and inheritances taken before January 1, 2015, the only 'farmer' test that applied was the '80pc agricultural property' test whereby agricultural property must comprise 80pc by value of the person's total property at the valuation date but there was no requirement for the 'farmer' to actually be a farmer.
However, in the case of gifts and inheritances taken on or after January 1, 2015 an 'active farmer' test also applies. There are three ways to meet the requirements;
Be an 'active' farmer, ie, farm the land on a full-time basis
Be a 'qualified farmer', ie, possess the necessary farm qualification and farm the land on a full-time or part-time basis , or
Lease the land for a period of at least six years to an active farmer or to a qualified farmer
Where the beneficiary decides to farm the agricultural property and then decides to lease it within the 6 year period, relief will not be withdrawn, provided the lease/lessee satisfies the requirements for the relief for the remainder of the six-year period.
Similarly, if a beneficiary initially leases the agricultural property and decides, within the six-year period, to end the lease (provided the lessee agrees) and to personally farm the agricultural property, relief will not be withdrawn.
Off farm Work
A beneficiary or a lessee, who does not have an agricultural qualification, must farm the agricultural property for at least 50pc of his or her normal working time.
This is where the matter becomes slightly confusing. Revenue states that a person's normal working time (including on-farm and off-farm working time) approximates to 40 hours per week.
Therefore, farmers with off-farm employment may qualify for agricultural relief where, averaged over a year, they work on the farm for at least 20 hours per week. What is not entirely clear is whether the 20 hours can be outside of the normal 9 to 5 hours.
The Revenue Capital Acquisition Tax manual states: 'A 40-hour working week is taken as indicative of normal working time.
'So, a farmer who works 20 hours per week on the farm satisfies the requirement, even if he or she spends more than 20 hours per week in an off-farm employment'.
The Revenue go on to state that if a farmer can show that his or her normal working time is somewhat less than 40 hours per week, the 50pc requirement will be applied to the actual hours worked, subject to the farmer being able to show that the farm is farmed on a commercial basis and with a view to the realisation of profits.
This would appear to suggest that where a farmer who does not possess an agricultural qualification can show, presumably by reference to the scale and nature of his farming enterprise, that he works at least 20 hours on the farm - whether that be mornings, evenings - Saturdays and Sundays, he is eligible for the relief.
Disposals and Reinvestment
Where part of or all of the agricultural assets inherited are disposed of within a six year period there may be a clawback of Agricultural Relief.
There are however exceptions such as where a beneficiary decides to lease the land to an active or qualified farmer and has no use for the stock and machinery that were also inherited.
In such cases the Revenue will grant the full relief provided that the 75pc (by value) of the property inherited is leased.
The other exception to a clawback is where the sale proceeds are reinvested in replacement land or on the construction of new agricultural buildings on the land or on other land owned by the beneficiary.
It is not necessary that reinvestment is made in the same type of agricultural property, for example, the proceeds from the sale of livestock could be reinvested in land or machinery without losing the relief.
A gift of the agricultural property, where no money changes hands, is not treated as a disposal so agricultural relief is not clawed back.
This could arise where an older farmer inherited land and decided within a short period of time to gift it on to his/her son or daughter.
An important point to note is that land that is acquired from a spouse does not qualify as the replacement of property.