Agricultural Relief on inheritances and gifts

Aug 5, 2015

Revenue have published an interesting guide on the above, which we re-print as follows =

Capital Acquisitions Tax

3. Agricultural Relief (Section 89 of the Capital Acquisitions Tax Consolidation Act 2003)

3.1 Capital Acquisitions Tax relief is available in respect of gifts and inheritances of agricultural property, as defined in Section 89(1), subject to certain conditions being satisfied. This relief has been amended in Finance Act 2014 to take account of recommendations of the Agri-Taxation Review, designed to ensure productive use of agricultural property.

3.2 Conditions
In addition to the existing conditions, including the requirement that a farmer’s agricultural property must comprise 80% by value of the farmer’s total property at the valuation date, the following conditions also apply to gifts or inheritances taken on or after 1 January 2015 where the valuation date also arises on or after 1 January 2015.
The beneficiary must:
• Farm the agricultural property for a period of not less than 6 years commencing on the valuation date or
• Lease the agricultural property for a period of not less than 6 years commencing on the valuation date. The agricultural property may be leased to a number of lessees as long as each lease and lessee
satisfies the conditions of the relief. Revenue will accept that a lease may be to another individual, to a partnership or to a company whose main shareholder and working director farms the agricultural property on behalf of the company. [Where land is leased to a company that is owned equally by an individual and that individual’s spouse or civil partner, and at least one of them satisfies the working director and the farming requirements, the relief will apply.].
In addition, the beneficiary (or the lessee, where relevant) must
• Have an agricultural qualification (a qualification of the kind listed in Schedule 2, 2A or 2B of the Stamp Duties Consolidation Act 1999) or
• Farm the agricultural property for not less than 50% of his or her normal working time.
The agricultural property must also be farmed on a commercial basis and with a view to the realisation of profits – thus confining the relief to genuine farmers.
If during the 6 year period a beneficiary farms the agricultural property and then decides to lease it, relief will not be withdrawn, provided the lease and the lessee satisfy the conditions of the relief (for the remaining period of the 6 years). Similarly, if a beneficiary initially leases the agricultural property and decides, within the 6 year period, to end the lease (provided the lessee agrees) and to personally farm the agricultural property, relief will not be withdrawn.

3.3 “Normal Working Time” Test. Revenue will accept, for the purposes of this relief, that “normal working time” (including on-farm and off-farm working time) approximates to 40 hours per week. This will enable farmers with off-farm employment to qualify for the relief provided they spend a minimum of 20 hours working per week, averaged over a year, on the farm. If a farmer can show that his or her “normal working time” is somewhat less than 40 hours a week, then the 50% requirement will be applied to the actual hours worked –
subject to being able to show that the farm is farmed on a commercial basis and with a view to the realization of profits.
It is expected that in the majority of situations it should be clear from the level of farming activity being carried on that the normal working time requirement is satisfied. If there is any doubt Revenue will consider all information (including farming records) provided by a farmer in relation to his or her normal working time and farming activities.
If in exceptional situations if it can be shown that, on an on-going basis, certain farming activities, e.g. farming involving the occupation of woodlands on a commercial basis, are carried out on a commercial basis and with a view to the realisation of profits, but do not require 50% of normal working time / 20 hours per week to be spent on such farming activities, Revenue will take this into consideration in deciding whether the relief is due.

3.4 Farming on a Commercial Basis
Whether a person is farming on a commercial basis and with a view to the realisation of profit can only be determined by reference to the facts in each case. It is expected that based on the facts, it will normally be clear whether this requirement is satisfied.
The fact that a farmer may make a loss in any year will not in itself result in relief being refused or withdrawn. Clearly, if a farmer continuously makes losses year on year, the circumstances would have to be examined carefully to see whether that person is farming on a commercial basis and with a view to the realisation of profit.
Single farm payments will be included as farming income in the computation of profits or losses in the normal way.

3.5 Withdrawal of Relief Agricultural relief is subject to withdrawal if the agricultural property is disposed of within 6 years from the date of the inheritance or gift and the proceeds of disposal are not reinvested as required within Section 89(4)(a).
In relation to gifts and inheritances taken on or after 1 January 2015, the relief is also subject to withdrawal if, within a period of 6 years from the valuation date, any of the conditions governing the relief introduced in Finance Act 2014 cease to be satisfied.
In this regard, if a beneficiary who inherits or is gifted agricultural property disposes of it within 6 years but reinvests the proceeds in other farmland used by him or her for farming or leases it in the qualifying manner, the beneficiary will not be regarded as having ceased to use the agricultural property for the purposes of the relief. In effect Section 89(4), CATCA 2003, which provides for the replacement of agricultural property with other agricultural property within 6 years of the inheritance or gift, will be regarded as applying.
It should be noted, in relation to gifts and inheritances taken on or after 1 January 2015, that the 6 year period of the use of agricultural property for farming by the beneficiary or by a lessee runs from the valuation date. Accordingly, if any of the following events occurs within 6 years of the valuation date agricultural relief may be withdrawn:
• Cessation of farming by the beneficiary without leasing the land to a lessee who farms the land for the remainder of the 6 year period
• Disposal of the agricultural property without reinvestment in further agricultural property that is farmed by the beneficiary or by a lessee for the remainder of the 6 year period.
Where a taxable gift or a taxable inheritance is taken by a beneficiary subject to the condition that the whole or part of that taxable gift or taxable inheritance will be invested in agricultural property and such condition is complied with within 2 years after the date of the gift or the date of the inheritance, then the gift or inheritance is deemed to have consisted at the date of the gift or at the date of the inheritance and at the valuation date of agricultural property to the extent to which the gift or inheritance is subject to such condition and has been so invested.
The 6 year period of the lease/use of farming by the beneficiary will run from the date of the investment by the beneficiary in the agricultural property.
In accordance with self assessment principles it is the taxpayer’s duty to make any necessary amendment to returns / self assessments to ensure relief is withdrawn where appropriate.

3.6 As the additional requirements applied to this relief by Finance Act 2014 relate to carrying on of farming activities – intended to ensure productive use of the agricultural property – they apply from the valuation date. In the case of a gift of agricultural property, the date of gift is the “valuation date”, whereas in the case of an inheritance the valuation date can be as early as the date of inheritance – where for example the person inheriting farms the agricultural property from the date of death of the deceased – or in other situations from the date of grant of probate or administration.
The focus of the amendments to Section 89, Capital Acquisitions Tax Consolidation Act 2003 is to give the relief to active farmers. As farmers cannot actively farm the agricultural property until they are in a position to commence farming, the reference in Section 89(4B) to “valuation date” is to give individuals who inherit land an opportunity to commence farming or, where relevant, to make arrangements for the agricultural property to be leased under the amended wider relief – as it can take time for a person to do so from the date of inheritance. The existing 80% asset “farmer” test applies at the valuation date and not at the date of inheritance and as such gives a window of opportunity, time wise, for a beneficiary to arrange his or her affairs so as to meet that 80% test. A similar window of opportunity, time wise, will be allowed to a beneficiary to meet the new active farmer test.
Where farming commences between the date of the gift or inheritance and the valuation date, Revenue will accept that the 6 year period will commence from the earliest time that the agricultural property is first farmed, whether by the person who inherits or is gifted the farm or by a lessee.

3.7 Where a beneficiary inherits agricultural property and intends to farm it, but is genuinely unable to do so immediately from the valuation date because of existing work commitments or other personal circumstances, the relief will not be refused where the beneficiary otherwise fulfils the requirements of the relief on taking up farming i.e. where the conditions of farming continue for 6 years from the date the farming is taken up. Examples of such situations include:
• The beneficiary may have existing work commitments that may take time to complete.
• The beneficiary may be living and working abroad, such that it may take time to organise a return to Ireland – including completion of existing work commitments.
• The beneficiary may be a full-time student whose studies are not completed.

3.8 Where a beneficiary who takes a gift or inheritance of agricultural property, that includes agricultural land and a farm house, leases the land to an individual, a partnership or a company (that will farm the land for the minimum requisite 6 year period and will satisfy the farming conditions outlined above) but retains the farm house and resides in it as his or her only or main residence, Revenue will not seek to restrict any part of the agricultural relief, granted to the beneficiary on the gift or inheritance, referable to the farmhouse itself in those circumstances.
Similarly, if the agricultural property includes plant and machinery or livestock, but a lessee only requires the land, agricultural relief will not be restricted where the land comprises substantially the whole of the agricultural property.

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