Another exemption worth noting is the 'small gift exemption' which allows any person to receive up to €3,000 of a gift (not an inheritance), per year from a donor.
This means that you could receive a gift of €3,000 every year from the same person tax free, or you could receive gifts of €3,000 from a number of people in one calendar year and no tax liability would arise.
Gift and inheritance tax is normally calculated on the market value of the property being gifted or inherited and an allowance is given for all of the expenses which are payable out of the gift or inheritance.
Agricultural Relief is a concession allowed to recipients who are farmers. To qualify as a farmer in this instance, 80pc of your gross property must be agricultural property.
Your gross property is the value of your property before taking account of debts. Agricultural property includes farm land, woodland, crops, farm buildings, farm houses (in certain cases mansion houses), livestock, bloodstock, machinery and the value of the Single Farm Payment and milk quota.
To qualify for Agricultural Relief the gift or inheritance must consist of agricultural property. The relief also applies in the exceptional circumstances where a gift or inheritance is received on condition that it is invested in agricultural property. This condition must be complied with within two years of receiving the gift or inheritance.
Agricultural Relief entitles recipients to a 90pc reduction in how the market value of the agricultural property inheritance is calculated. For example, take a farmer with a farm worth €2,000,000 which includes land, stock, Single Farm Payment etc. He plans to leave the farm to his son in his will.
If his son did not qualify for Agricultural Relief he would be liable to pay tax at 33pc on the value of the inheritance above €225,000 – this would amount to €585,750.
However, if his son falls into the category of farmer detailed above, the value of the farm would be reduced by 90pc to €200,000. And as the relationship falls into Group A detailed above, the son can inherit up to €225,000 tax free. So in this case no inheritance tax would be due.
One further consideration would be where the farmer intended to leave the same farm worth €2,000,000 to his son and also €100,000 in cash.
In this case, the agricultural relief reduces the value of the farm to €200,000, but €75,000 of the cash gift would be liable for tax at 33pc.
It's advisable then for the farmer to consider either investing the cash in agricultural property or directing that the cash be used for investment in agricultural property.
If the recipient does not meet the requirement that 80pc of his/her gross property is agricultural property, he/she may still qualify for Business Property Relief.
In this case, the 90pc reduction is applied if the farming business has not ceased operating in the five years prior to the gift, or two years in the case of an inheritance.
If the lands had been rented it would not be likely to benefit from this relief. In essence the business of farming must be ongoing or there will be no business to transfer.
Withdrawal of Agricultural Relief
These reliefs come with the caveat that the land acquired must not be sold within six years of the receipt of the gift or inheritance.
If it is sold with a view to replacing it with other land, it must be replaced within one year. Otherwise the relief may be withdrawn by Revenue.
Where land is sold within six to 10 years of receipt of the gift or inheritance, the relief is withdrawn in respect of the land's development value at time of the gift or sale.
Another important provision is that recipient must also be resident in Ireland for the three tax years after receiving the gift or inheritance.
Favourite Nephew Relief
The common occurrence of gifting a farm to a niece or nephew has resulted in the creation of the Favourite Nephew Relief.
In this case where a niece or nephew (or step child or adopted child of a brother or sister) has worked between 15 and 24 hours per week on the farm, they will be treated, for gift or inheritance tax purposes, similar to a farm owner's child. This means that 'agricultural relief' or 'business property relief' could apply.
While all the rules and exemptions may seem complicated, they are essential considerations for farmers thinking about transferring land. Potential recipients also need to organise their affairs to avoid a situation where the farmer is giving with one hand while Revenue takes with the other.
Theresa Murphy is a barrister based in Ardrahan, Co Galway. Contact: email@example.com.
- This article is intended as a general guide only and professional advice should always be sought for individual circumstances. No liability is accepted for errors.