To be an ‘active farmer’, more than 80% of your worth must come from farming.
Inheritance tax may arise where a beneficiary receives an inheritance on the death of another person.
In some cases a bequest may include agricultural assets, including land, stock, implements and machinery.
Here, Karen Walsh — author of Farming and the Law — outlines a number of reliefs and exemptions that may apply depending on the circumstances.
The relief which is of greatest importance to farmers, and which is regularly availed of in the transfer of ownership of farms and other agricultural assets, is agricultural relief.
This operates by reducing the market value of agricultural property by 90%, so that the taxable value, for inheritance purposes, of the agricultural assets, including land, stock, implements and machinery, is only 10% of the market value.
This reduced value is known as “agricultural value” and it is on this figure that any inheritance tax is calculated.
As the “agricultural value” is substantially less than the market value, most farm transfers and inheritances do not give rise to any liability for payment of inheritance tax. However, there are strict conditions that must be satisfied before the relief applies.
In general, the relief applies provided the beneficiary qualifies as a “farmer”. The
person will qualify as a “farmer” if, on the valuation date, the beneficiary’s agricultural property comprises a minimum of 80% of the beneficiary’s total property.
In addition, the inheritance must consist of agricultural property, both at the date of the inheritance and at the valuation date.
The valuation date is the date at which the property is valued for inheritance tax purposes.
In inheritance situations, this is normally the date the grant of probate or administration issues. The beneficiary must also satisfy what is known as the ‘active farmer’ test.
He or she must:
* Farm the agricultural property for a period of not less than six years commencing on the valuation date; or
* Lease the agricultural property for a period of not less than six years commencing on the valuation date.
In addition, the beneficiary (or the lessee, where relevant) must:
* Have an appropriate agricultural qualification; 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.
Ann owns the following: a house valued at €180,000; a car worth €5,000; and she has €2,000 in a bank deposit account. She receives an inheritance of farmland valued at €1,000,000, plus livestock and farm machinery valued at €50,000.
Is Ann a farmer?
For her to qualify as a farmer, the answer must not be less than 80%.
So let’s do the maths. The gross market value of Ann’s assets, after taking the inheritance, is €1,237,000. The gross market value of her agricultural assets is €1,050,000.
So we calculate the proportion of the inheritance, €1,050,000, as part of her total assets €1,237,000 — and it comes out at 84.88%.
Therefore, in this scenario, Ann is considered to be a farmer for the purposes of agricultural relief as she exceeds the 80% threshold.
However, she must meet the criteria imposed as a result of the Finance Act 2014 to either farm the land or lease the land for the six years post transfer, as appropriate.
* From a farming background, Karen Walsh the is author of ‘Farming and the Law’ (Clarus Press) and a solicitor practicing in Walsh & Partners, Solicitors.
Karen Walsh, from a farming background at Grenagh, Co Cork, is a solicitor practicing in Walsh & Partners, Solicitors and Commissioners for Oaths, 17, South Mall, Cork.
While every care is taken to ensure accuracy of information contained in this article, solicitor Karen Walsh does not accept responsibility for errors or omissions howsoever arising, and you should seek legal advice in relation to your particular circumstances at the earliest possible time.
© Irish Examiner Ltd. All rights reserved