How to avoid tax traps when transferring farm property
Published 02/12/2015 | 02:30
In most family farm situations the farm can be transferred free of any taxes.
This applies particularly where the recipient or transferee is a 'young trained farmer' and does not possess any non-farm assets of any consequence and where the transferor is under 66.
However, there are many situations where the beneficiary may have a potential exposure to tax but the good news is that in many instances such an exposure could be avoided.
Under current tax legislation a parent can only gift or bequeath a maximum of €280,000 in the form of cash or property to their child.
Clearly most family farms are worth considerably more than this and were it not for the availablity of a very valuable tax relief known as Agricutural Relief the consequences for most families would be dire. This article will deal with securing Agricultural Relief.
The availability of this relief has the effect of reducing the market value of the agricultural property being gifted or inherited by 90pc.
Prior to the 2014 Finance Act, entitlement to the relief was solely dependent on meeting the 80pc Agricultural asset test but the 2014 Act introduced additional requirements to ensure that there was productive use made of the land following the transfer or inheritance.
The 80pc test
To qualify for Agricultural Relief, at least 80pc of the gross market value of all of one's possessions, including the relevant gift or inheritance, must comprise agricultural property.
Loans or debts are not deductible with the exception of your principal private residence mortgage. The test is applied on a once-off basis on the valuation date of the gift or inheritance.
The valuation date in the case of a gift is the date of the gift. In the case of an inheritance,it is normally the date on which the grant of probate or administration issues in the estate or the date that the beneficiary acquires the use of the asset.
An important condition is that the agricultural property must be retained for a period of at least six years from the date of the gift or inheritance.
A beneficiary may qualify for agricultural relief on non-agricultural property (such as cash) where a gift or inheritance is made subject to the condition that it be invested in agricultural property and that condition is satisfied within two years after the date of the gift or inheritance.
The question of what qualifies as a farm dwelling is not always clear cut.
Generally where there is one farmhouse on the holding, there is no issue. However where there is more than one the legislation is far from clear.
As a general rule the 'elephant test' is applicable whereby if it's looks, location and function are what one would associate with a farm dwelling, well then it is a farm dwelling for Agricultural Relief purposes.
This article is the first of a two part series on the taxation aspects of transferring the family farm. Part II will deal with meeting the active farmer requirement.
Martin O'Sullivan is the author of the ACA Farmers Handbook. He is a partner in O'Sullivan Malone and Company, Accountants and Registered Auditors. www.som.ie. Ph: 051 640397
Tips for meeting the 80pc threshold
Convert cash into stock, farm buildings or machinery
Transfer the family home into your spouse's name.
Transfer other non-agricultural assets into your spouse's name.
Transfer cash into your personal pension fund.
If willing or gifting cash assets to your child, specify that the cash is to be spent on purchasing agricultural assets.
Assets that qualify as Agricultural Property
Agricultural land, pasture and woodland situated in the European Union;
Crops, trees and underwood growing on such land;
Farm buildings and dwelling houses that are proportionate in size and character to the requirements of the farming activities
Farm machinery, livestock and bloodstock situated on such property;
Basic Payment Entitlements.
Assets that do not qualify as Agricultural Property
Cash, investments etc.
Shares in Co-op's and PLC's
Shares in Limited Farming Companies
Private motor vehicles
Sums owing to you including amounts owed in respect of sale of agricultural produce.