Many farming assets are passed to the next generation with little or no Capital Acquisitions Tax liability
(CAT is a tax on gifts and inheritances – current rate 33%). The main reason has been the availability of “Agricultural Relief”, but these rules are changing substantially at the end of this year.
CAT is generally applied to the market value of property. Agricultural relief works by reducing the market value of ‘agricultural property’ by 90%, with CAT then calculated on the reduced value.
For example, agricultural relief reduces the value of farm land and buildings worth €500,000 to €50,000 for CAT purposes. Where agricultural relief is not available on the transfer of a farm worth €500,000 to say a son/daughter, the amount of CAT payable would be €90,750 (assuming the child has never received any previous gifts/inheritances from his/her parents). If agricultural relief was available then the CAT would be reduced to nil.
A number of conditions must be satisfied for agricultural relief to apply. However, as a result of new measures introduced in Budget 2015, it is going to be much more difficult to qualify for agricultural relief after 1 January 2015.
For gifts/inheritances before 31 December 2014, the relief applies provided the beneficiary qualifies as a ‘farmer’. A ‘farmer’ is defined as an individual for whom at least 80% of their assets, after taking a gift or inheritance, consist of agricultural property.
From 1 January 2015 the definition of ‘farmer’ for agricultural relief has been narrowed such that only ‘active farmers’ will qualify. The recipient farmer will have to spend not less than 50% of his/her working time farming on a commercial basis for not less than 6 years following the gift/inheritance. Alternatively, a beneficiary who leases the agricultural assets for at least 6 years to such an ‘active’ farmer can qualify. The previous 80% asset ownership test also still applies.
So, if you have farming assets which you are thinking of passing on to the next generation, and the beneficiary is not an “active farmer”, you should give serious consideration to making these transfers before 31 December 2014.
Other taxes need to be considered in respect of the lifetime transfer of farming assets, including capital gains tax for the individual gifting the assets and stamp duty for the beneficiary.
Please do not hesitate to contact our office on 0749321420 for expert tax advice if you are considering a farm asset transfer.