The Revenue Commissioners have issued a new guide to the reliefs focused on the farming sector, announced in last year’s Budget.
It explains in detail the changes to agricultural relief, plus the extension of income averaging, and the income tax exemption for land owners leasing out their land.
Agricultural relief and business relief are probably the most important tax breaks for Irish farmers.
Without agricultural relief or business relief, those who receive a gift or inheritance of even an averaged sized farm would face a gift or inheritance tax bill of hundreds of thousands, given that the maximum tax-free thresholds between parents and children are now just €225,000, beyond which capital acquisitions tax applies at 33%.
The guide refers to recommendations of the agri-taxation review of early 2014, which sought to encourage productive use of agricultural property.
Up to December 31, 2014, agricultural relief was broadly available, the main restrictions limited to a requirement for beneficiaries to retain ownership for six years after transfer (or ten years in the case of development), and an asset test which granted the relief if an individual’s total agricultural property at the point of transfer comprised at least 80% by value of the person’s total property.
Take, for example, an individual inheriting €500,000 worth of farm land, prior to the turn of the year. That individual could have availed of agricultural relief, if they owned less than €125,000 of non-agricultural assets at the point of transfer — and satisfied the above ownership conditions.
Where an individual qualifies for agricultural relief, the value of the assets is reduced by 90%, for tax purposes. Under these basic rules, it was possible to receive a gift or inheritance, let the land by conacre, or even let it fallow, and still claim this valuable tax break. Under the new rules, this is no longer possible.
Going forward, the rule changes are such that the relief is now available only where the land is farmed by the individual (“farming option”), or leased out (“leasing option”). But, in either case, the land must be farmed on a commercial basis for the following six years.
Whether the land is farmed by the individual or leased out, the owner in the case of the “farming option”, or the tenant as the case may be, must either be a full time farmer (typically spending not less than 20 hours per week on average farming land, but with some exceptions), or must be a trained farmer.
The guide answers many of the questions raised since the regime changes were announced.
In particular, it confirms that in the case of a beneficiary who decides to lease their land, the tenant can be an individual, partnership or a company — as long as the main shareholder and working director farms the land.
Revenue will also facilitate leasing of land to a company jointly owned by a farmer and their non-farming spouse or civil partner.
The guide also clarifies that, under the leasing option, the farm can be let to one or more tenants, as long as each tenant satisfies the relevant criteria.
Furthermore, the guide confirms that relief will not be withdrawn, where a person who receives a gift or inheritance of land switches from the farming option to the leasing option, or vice versa, where the remaining conditions are satisfied.
However, it is important to note that relief will be withdrawn, where there is a switch of tenants within the six years. To that end, it is vitally important that any owner availing of the leasing option ensures their tenant can fulfil their obligations for the full six-year term.
Interestingly, on a regressive note, the guide infers that a Revenue decision will now need to be obtained in cases of forestry. In the past, no such approval was required.
And the guide suggests that the new rules requiring agricultural assets to be farmed may create an issue in the case of houses transferred with land, particularly where the owner intends to lease both the land and any farm houses thereon.
On a positive note, the guide offers concessions in the case of a genuine hardship where an individual is unable to farm the land immediately after a gift or inheritance, such as persons in full time education or working abroad.
In seeking to improve the targeting of the relief towards active farmers, it is unfortunate that the changes have added a raft of complications which now need to be factored in. As always, professional taxation advice should be obtained on an individual’s particular circumstances.
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