Farm Ireland

Sunday 25 March 2018

What 'active farmer' means for land transfer tax breaks

Farmers with off-farm employment qualify for agricultural relief.
Farmers with off-farm employment qualify for agricultural relief.

Martin O'Sullivan

The previous article in this series on the taxation aspects of transferring a farm dealt with the very valuable concession that is Agricultural Relief and the requirements for qualification.

In addition to the requirement that a person's agricultural property must comprise 80pc of the person's total property at the valuation date, the Finance Act of 2014, introduced an 'active farmer' requirement which must also be satisfied in relation to gifts and inheritances taken on or after January 1, 2015 .

You can qualify as an active farmer in three ways:

Farm the land as an active farmer for a minimum period of six years, You do not have to have a farm training qualification but you must farm for 50pc or more of your normal working time. If during the six-year period you decide to lease the land, relief will not be withdrawn, provided the lease/lessee satisfies the requirements for the relief for the remainder of the six-year period.

Be a qualified farmer, ie, hold a Green Cert or equivalent (or acquire one within four years of the gift or inheritance date) and farm the land for a minimum period of six years, In this instance you are not required to farm the land for 50pc or more of your normal working time.

Lease the land to an active farmer (as above) or to a qualified farmer (as above). The lease must be for a minimum period of six years and there can be a number of lessees if necessary provided each lessee satisfies the requirements.

A lease can be to a company but the main shareholder must be a working director and must farm the agricultural property on behalf of the company.

Where land is leased to a company that is owned equally by a person and his or her spouse or civil partner, at least one of them must satisfy the working director and farming requirements to qualify for the relief.

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Farmhouses, Stock and Machinery

Where a beneficiary inherits agricultural property that includes land and a farmhouse and leases the land but retains the farmhouse and resides in it as his or her only or main residence.

Revenue will allow agricultural relief to apply to the farmhouse. Similarly, if the agricultural property includes plant and machinery or livestock, but a lessee requires only the land, agricultural relief will not be restricted where the land comprises substantially the whole of the agricultural property.

Revenue will accept that substantially the whole of the property means at least 75pc of the property by value.

Meaning of '50pc of Normal Working Time'

Revenue will accept, for the purposes of Agricultural Relief, 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 qualify for agricultural relief where, averaged over a year, they work on the farm for at least 20 hours per week.

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 will generally be evident by the scale of farming activity being carried on.

The one exception to this rule is commercial forestry where Revenue will not require the 50pc rule to be met.

Business Relief

Where a beneficiary is ineligible for Agricultural Relief because of the 80pc agricultural asset requirement, he/she may qualify for Business Property Relief.

This is similar in nature to Agricultural Relief in that it reduces the value of the business assets (including land but excluding the farm dwelling) being transferred to 10pc but there is no 80pc agricultural asset test as referred to above.

However in the context of farming assets, the relief is conditional on the transfer of the business as a going concern which in this case would be farming.

This would exclude a situation where the business (farming) had ceased in the five years prior to the transfer (two years in the case of an inheritance) and the land had been rented.

The relief is conditional upon the business (farming enterprise) being carried on by the beneficiary for a six year period.

Where the farming is being operated as a limited company but the farmer owns the land, transferring the land without the company will not qualify the recipient for relief.

Agricultural Relief can be clawed back when:

There is a disposal or compulsory acquisition of the agricultural property within six years of the date of the gift or inheritance and the proceeds of the disposal are not reinvested in other agricultural property within one year of the sale or within six years of the compulsory purchase.

If any part of the agricultural property is not farmed by an active farmer, or by a lessee who is an active farmer, for at least 50pc of the person's normal working time Farm buildings and dwelling houses that are proportionate in size and character to the requirements of the farming activities

If the land is not farmed on a commercial basis, throughout the six-year qualifying period Basic Payment Entitlements.

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