New 2015 requirements in tax-efficient farm transfers

The Select Sub-Committee on Finance has progressed the Finance Bill 2014 one step closer to finalisation, with some amendments to the proposed legislative changes on Agricultural Relief.

Agricultural Relief gives a 90% reduction in the value of agricultural property for gift and inheritance tax.

The overriding condition is that the recipient must pass the “farmer test”, having more than 80% of the value of their property in “agricultural property”, in order for agricultural relief to apply.

In addition to this primary condition, the revised Finance Bill now provides that this valuable relief can be available as follows:

(1)

Agricultural Relief can be granted to beneficiaries where the individual is a trained farmer, having completed one of the approved courses as defined by the young trained farmer stamp duty relief legislation, or where an individual receives such a qualification within four years of receiving the agricultural property. Furthermore, the individual must farm the property for a six-year period following the gift or inheritance of the land, farming on a commercial basis with a view to realisation of profits.

(2)

Or agricultural relief will be available to individuals who spend not less than 50% of their normal working time farming on a commercial basis, with a view to realisation of profits, for the six years following the transfer.

(3)

Agricultural relief will also be available where the recipient leases the whole or substantially the whole of the property to an individual who satisfies option 1 or 2 described above, namely such property would need to be let to a trained farmer or to a farmer who spends not less than 50% of their normal working time farming.

As covered here in recent weeks, it is important to remember that Business Relief can offer an alternative option, where a farmer is passing on a farm as a going concern to an individual who carries on that business for a further six years. Speaking on the amendment to the legislation (being the addition of Option 1 above), Finance Minister Michael Noonon said, “This amendment is designed to ensure that beneficiaries of agricultural property who hold qualifications in agriculture and who are productive farmers, but who are not in a position to spend at least 50% of their normal working time farming the agricultural property, can also avail of the relief.”

Mr Noonan also referred to Guidance Notes to be issued by Revenue in relation to Option 2 above, and suggested that a person spending at least 20 hours a week farming on a commercial basis, with a view to realisation of profits, would be deemed to satisfy the criterion of spending “not less than 50% of their normal working time farming”.

In addition to the above Agricultural Relief modifications, corresponding anti-avoidance is included in the legislation, which seeks to claw back Agricultural Relief where the relevant conditions are not maintained.

In this regard, successors who intend to avail of agricultural relief through the option of leasing their land should take particular care that the lesee is a trained farmer, as defined, or spends more than 50% of their time farming the land. Any such lesees must farm the land as individuals for the following six years, with no facility for default, and no option to farm the land as corporate tenants.

Given the serious and onerous tax implications which could arise from any loss of agricultural relief, it will be critical for successors to ensure any letting agreements protect them sufficiently.

Staying with this particular legislative point on agricultural relief for persons who lease their land, it seems that, based on strict interpretation, leases would only be available where agricultural property is leased to a single individual, as opposed to where land is let to multiple individuals or farmers operating in partnership.

The requirement that all or substantially all of the property being received by the successor is leased to an individual farmer may also pose practical problems, as relief can usually extend to cover farm houses, farm buildings, stock, machinery and single farm payment entitlements.

This new legislation is expected to operate from January 1, 2015, there is an opportunity for transfers to successors under existing rules prior that date.

As always, appropriate professional advice should be obtained.


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