Agricultural Relief

Are you a farmer wondering about Agricultural Relief? Today we discuss the topic.

I am a part-time farmer and I understand that I will inherit my father’s farm after his death. He is quite elderly and in poor health at present. Whilst I will obviously be very grateful for the farm I am very concerned that I may be left with a large tax bill. I believe the farm may be worth around €750,000 at the moment. I understand that the relevant tax date will be the date of my father’s death. Please advise me.

At present, a child may inherit up to €320,000 from their parents without being liable for tax. Any inheritance valued in excess of this amount will be taxed at a rate of 33%. This tax is called Capital Acquisitions Tax (CAT) or more commonly inheritance tax or gift tax.

However, farmers may qualify for a very valuable relief called Agricultural Relief.  If you qualify for the relief then the CAT will be calculated on 10% of the market value of the agricultural property received as a gift or inheritance. You essentially get 90% of the market value of the agricultural property tax free.

Example, if you qualify for Agricultural Relief the value of the farm you are scheduled to inherit will no longer be valued at €750,000 for tax purposes. Instead it will be valued at just 10% of its value and you will be considered to have received an inheritance of €75,000 for tax purposes, well below the tax threshold resulting in €0 inheritance tax liability.

In order to qualify for this 90% Agricultural Relief you must pass two tests i.e. be a “farmer” and also an “active farmer” as defined by the Revenue Commissioners.

The farmer test is a financial test whereby 80% or more of your gross assets, after receiving the agricultural inheritance, must comprise farm assets.

You must also be an active farmer for 6 years after you get the inheritance of agricultural property OR you must lease the land to a person who is an active farmer for the 6 year period. An active farmer is a person with a formal agricultural qualification or if you do not hold one of the formal agricultural qualifications you must spend 50% of your normal working time farming agricultural property.

This criteria applies to a gift or inheritance of agricultural property.

May I respectfully suggest that you liaise with your Accountant and secure tax planning advices so as to ensure you are best placed to qualify for agricultural relief in due course.

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