€3m limit worth considering in Agricultural Relief changes
Agricultural Relief allows a 90% reduction in the value of assets, when calculating any applicable gift or inheritance tax (called Capital Acquisitions Tax, or CAT for short).
The proposed amendment to the CAT rules, arising from Budget 2015, was to restrict Agricultural Relief to cases where the recipient either satisfied the condition of being an “active farmer” for the six years after transfer, or alternatively leased out their land for six years after transfer.
Importantly, the proposed definition of an active farmer is a person who spends at least 50% of their normal working time farming land. There have been calls for relaxation of proposed changes, for instance where recipients genuinely cannot satisfy the 50% working time criterion, because of off-farm employment.
The issue with Agricultural Relie is that this relief is relatively freely available.
In fact, the conditions are so loose that a recipient of farm land can qualify for agricultural relief, regardless of whether they have any intention of farming the land at all, not to mind whether the individual has received any agricultural training.
To take it to an extreme, an individual can qualify for agricultural relief, whether they lease the land, let it by conacre, or leave it fallow.
Similarly, the relief is not limited at the upper end of the scale, meaning that this particular relief provides a perfect opportunity for high net-worth individuals to pass on significant wealth to children with little or no gift of inheritance tax.
The proposed changes offered some modicum of restriction but, in a way, may actually have a disproportional impact on part-time farmers. To this end, my personal preference would have been an overall restriction in the amount of Agricultural Relief, to a maximum of €3m, taking in the upper scale of commercial family farms.
Equally, the proposed changes do nothing to address the serious lack of formal training within farming circles. A recent Macra Na Feirme land mobility study showed that approximately 50% of persons who receive a gift or inheritance of a farm have no agricultural training.
The proposed restriction to agricultural relief, in the case of non-farmers, insisting that such persons lease out the land for a minimum of six years, is certainly warranted, and it would be pitiful if this clever proposal is watered down, as the Finance Bill works its way through Committee Stage.
This amendment also goes some way towards boosting the amount of land which is leased, as opposed to let by conacre.
In Ireland, the amount of land which is leased is paltry by comparison to the amount of land let by conacre.
This is almost a uniquely Irish problem and poses a significant obstacle to the long term development of farming, because farmers cannot plan for business expansion because of the risk of losing land at the whim of land owners.
For those who suggest the entire proposal should be repealed, bear in mind that business relief is still available as an alternative to agricultural relief. Business relief similarly allows a 90% reduction in value for CAT purposes, where a business which has been carried on by a farmer for the previous five years is transferred to an individual who continues to carry on that business.
Perhaps it is time for an honest assessment of where tax policy in this area is failing, and what we as a farming community ultimately want to achieve.
Are we willing to tolerate the starved access to land for farmers wishing to expand, while simultaneously allowing a series of reliefs and exemptions which facilitate and even encourage land ownership by non-farmers?
