Farm Advice: How to satisfy the 'active farmer' requirement
Eligibility for Agricultural Relief is decided by measures including working hours and farm qualifications
The average farmer is close to 60 years of age so it will come as no surprise to anybody that succession and estate planning is a service in growing demand.
Two weeks ago I attempted to clarify and demystify some of the provisions of the 2014 legislation changes to Agricultural Relief and this week I will continue in that vein concentrating on that ubiquitous being, 'the active farmer'.
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The active farmer designation in this context has nothing to do with one's state of health or fitness, but rather, it has all to with who farms the land, their qualifications and the amount of time they spend farming.
ACTIVE FARMER REQUIREMENTS
The 2014 legislation requires that the farm is farmed by an 'active farmer'. In summary, there are three ways to meet the 'active farmer' requirement:
Farm the land as an active farmer which means that you farm the holding for at least 50pc of your normal working hours.
Be a qualified farmer and farm the land which means that you can farm the holding part-time if you so wish.
Lease the land to an active farmer or to a qualified farmer meaning that the person you lease the farm to can be part-time or full-time depending on whether they have the required farm training qualification.
The question of how long one has to become an 'active farmer' has proven to be the source of some uncertainty.
Where a beneficiary cannot meet the active farmer requirements immediately for a variety of reasons such as, existing work commitments at home or abroad or studies not completed or other personal circumstances, the relief will not be refused once the beneficiary begins actively farming the land within a year of the valuation date.
The wording contained in Revenue guidance would suggest that this time limit may also apply to a lessee. However, in both cases the six year retention period will run from the commencement of active farming.
WORKING TIME RULE
Where a beneficiary intends to farm the land but does not possess or does not intend to acquire a relevant farming qualification, they are required to be an "active farmer" whereby they must spend no less than 50pc of their normal working time farming agricultural property for a period of not less than six years starting on the valuation date.
The farming activity must be on a commercial basis, and carried on with a view to the realisation of profits.
Revenue have clarified that they will accept that "normal working time" (including on farm and off farm working time) approximates to 40 hours per week and that farmers with off-farm employment would qualify if they spend a minimum of 20 hours working on the farm each week, averaged over a year.
This means that people whose work circumstances are such that they could reasonably be capable of working the 20 hours on average will qualify.
To date I have found that where a reasoned case is made to Revenue that on average 20 hours per week is being or can be worked, they will not refuse the relief.
THE 75PC RULE
Where a beneficiary is not in a position to farm the land and intends to lease it to a qualified or full-time farmer, the question of eligibility of livestock, machinery and the dwelling house may present a problem.
In this regard, Revenue have confirmed that relief will not be restricted where the land comprises 'substantially the whole' of the agricultural property. Substantially the whole of the property can be taken to mean at least 75pc of the property, by value.
CHANGE OF PLAN
Where an individual has opted to exercise the active farmer requirement by farming the land and then decides to cease farming and lease it, relief will not be withdrawn provided the lessee satisfies the requirements for the relief for the remainder of the six-year period.
Similarly, if a beneficiary initially leases the agricultural land and decides, within the six-year period, to end the lease (provided the lessee agrees) and to personally farm the land, relief will not be withdrawn. A further point that has been clarified by Revenue is that a beneficiary would have a period of one year to re-let the land to an "active" farmer if the original tenant ceases renting.
There has been a degree of uncertainty over how long the land has to be retained and/or farmed without incurring a clawback.
There are two particular situations that can give rise to a clawback but at different times.
The first one is where a disposal of the property occurred within a six-year period and the second is where the 'active farmer' requirement is not being met within the six year period. As it happens both clawback periods begin on two different dates.
The six-year clawback window for disposal of the property starts on the date of the gift or inheritance, but the six-year clawback window for the active farmer requirement starts on the valuation date which in many instances will be the date of the Grant of Probate assuming that the farming had not commenced by the beneficiary prior to that date.
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