A taxing issue for owners of farm dwellings
The question of what dwellings qualify for Agricultural Relief is one of the most complex aspects of farm succession planning, writes our expert
Farm succession can throw up a myriad of issues, generally ones that potentially could benefit the tax man.
Many are avoidable and can be worked around, but some are not and one such issue that has raised its head after being in deep slumber for most of the past decade is the dwelling house and the value of same.
I'm speaking of dwellings that do not qualify under the Revenue definition of agricultural property and consequently do not qualify for Agricultural Relief which can bestow a 90pc reduction in the market value of the property when gift or inheritance tax is being assessed. There are a number of reasons why a dwelling on a farm might not qualify as Agricultural Property such as:
- The dwelling is transferred on its own without land, or
- The dwelling is not the only and primary dwelling on the farm, or
- The dwelling and the land on which it is situate is not proportionate in size and character to the requirements of the farming activities, or
- The transferee is not eligible for Agricultural Relief but is eligible for Business Relief in which case the dwelling does not qualify.
They say that a rising tide lifts all boats and this also applies to the value of farm dwellings. In general farm dwellings do not have a very high value as typically they are surrounded by or are in close proximity to the farmyard.
However this is not always the case and some farm dwellings can be quite valuable in their own right with the value currently rising with the aforementioned tide.
Accordingly, people need to give due consideration to the future value of the dwelling and the tax consequences where they intend to retain ownership of it until they pass on. The case study (see panel) is based on an actual case.
FARM DWELLINGS AND LAND
I am frequently asked the question - does a particular dwelling qualify for Agricultural Relief or how much land needs to go with a dwelling in order for the entire holding to be regarded as Agricultural Property and qualify for relief.
The Revenue definition of Agricultural Property in this context which is 'Farm buildings and dwelling houses (and the land on which they are situated) that are proportionate in size and character to the requirements of the farming activities' does not really answer the question as every case is different.