Capital Acquisition Measures
An indicative list of the Capital Acquisition Tax measures that are currently available (updated for changes introduced in Budget 2015) to the farming sector are listed here, along with a brief explanation. Please note that these do not purport to give a definitive legal interpretation of the various measures and individuals may wish to seek professional advice if availing of them.
- Agriculture Relief from Capital Acquisition Tax
- Capital Gains Tax /Capital Acquisition Tax “same event” relief
- Lower interest rate on instalment payments for Capital Acquisition Tax due on gifts/inheritances of agricultural property
Agricultural Relief from Capital Acquisition Tax
Capital Acquisitions Tax relief is available in respect of gifts and inheritances of agricultural property, subject to certain conditions being satisfied. This relief has been amended in Budget 2015 to take account of recommendations of the Agri-Taxation Review, designed to ensure productive use of agricultural property.
The relief operates by reducing the market value of “agricultural property” by 90%, so that gift or inheritance tax is calculated on an amount - known as the “agricultural value” – which is substantially less than the market value. In general, the relief applies provided the beneficiary qualifies as a “farmer”. To qualify for agricultural relief, the person receiving the gift or inheritance must be a “farmer” at the valuation date.
“Agricultural property” means lands in a Member State of the European Union, buildings, crops, trees, farm machinery, livestock and Single Payment Entitlements.
For the purposes of the relief, a “farmer” means: an individual in respect of whom at least 80% of his/her assets, after taking a gift or inheritance, consist of agricultural property on the valuation date of the gift or the inheritance.
Targeting of Agricultural Relief
In addition to the existing conditions, including the requirement that a farmer’s agricultural property must comprise 80% by value of the farmer’s total property at the valuation date,the following conditions also apply to gifts or inheritances taken on or after 1 January 2015 where the valuation date also arises on or after 1 January 2015.
The beneficiary must:
- Farm the agricultural property for a period of not less than 6 years commencing on the valuation date or
- Lease the agricultural property for a period of not less than 6 years commencing on the valuation date. The agricultural property may be leased to a number of lessees as long as each lease and lessee satisfies the conditions of the relief. Revenue will accept that a lease may be to another individual, to a partnership or to a company whose main shareholder and working director farms the agricultural property on behalf of the company. [Where land is leased to a company that is owned equally by an individual and that individual’s spouse or civil partner, and at least one of them satisfies the working director and the farming requirements, the relief will apply].
In addition, the beneficiary (or the lessee, where relevant) must
- Have an agricultural qualification (a qualification of the kind listed in Schedule 2, 2A or 2B of the Stamp Duties Consolidation Act 1999) or achieve such a qualification within a period of 4 years commencing on the date of the gift or inheritance, 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 – thus confining the relief to farmers as defined in legislation. If during the 6 year period a beneficiary farms the agricultural property and then decides to lease it, relief will not be withdrawn, provided the lease and the lessee satisfy the conditions of the relief (for the remaining period of the 6 years). Similarly, if a beneficiary initially leases the agricultural property and decides, within the 6 year period, to end the lease (provided the lessee agrees) and to personally farm the agricultural property, relief will not be withdrawn.
“Normal Working Time” Test
Revenue will accept, for the purposes of this relief, that “normal working time” (including on-farm and off-farm working time) approximates to 40 hours per week. This will enable farmers with off-farm employment to qualify for the relief provided they spend a minimum of 20 hours working per week, averaged over a year, on the farm. If a farmer can show that his or her “normal working time” is somewhat less than 40 hours a week, then the 50% requirement will be applied to the actual hours worked – subject to being able to show that the farm is farmed on a commercial basis and with a view to the realization of profits.
It is expected that in the majority of situations it should be clear from the level of farming activity being carried on that the normal working time requirement is satisfied. If there is any doubt Revenue will consider all information (including farming records) provided by a farmer in relation to his or her normal working time and farming activities.
If in exceptional situations it can be shown that, on an on-going basis, certain farming activities, e.g. farming involving the occupation of woodlands on a commercial basis, are carried out on a commercial basis and with a view to the realisation of profits, but do not require 50% of normal working time / 20 hours per week to be spent on such farming activities, Revenue will take this into consideration in deciding whether the relief is due.
Farming on a Commercial Basis
Whether a person is farming on a commercial basis and with a view to the realisation of profit can only be determined by reference to the facts in each case. It is expected that based on the facts, it will normally be clear whether this requirement is satisfied.
The fact that a farmer may make a loss in any year will not in itself result in relief being refused or withdrawn. Clearly, if a farmer continuously makes losses year on year, the circumstances would have to be examined carefully to see whether that person is farming on a commercial basis and with a view to the realisation of profit.
Single farm payments will be included as farming income in the computation of profits or losses in the normal way.
Withdrawal of Relief
Agricultural relief is subject to withdrawal if the agricultural property is disposed of within 6 years from the date of the inheritance or gift and the proceeds of disposal are not reinvested.
In relation to gifts and inheritances taken on or after 1 January 2015, the relief is also subject to withdrawal if, within a period of 6 years from the valuation date, any of the conditions governing the relief introduced in the Finance Act 2014 cease to be satisfied.
In this regard, if a beneficiary who inherits or is gifted agricultural property disposes of it within 6 years but reinvests the proceeds in other farmland used by him or her for farming or leases it in the qualifying manner, the beneficiary will not be regarded as having ceased to use the agricultural property for the purposes of the relief. In effect the replacement of agricultural property with other agricultural property within 6 years of the inheritance or gift will be regarded as applying.
It should be noted, in relation to gifts and inheritances taken on or after 1 January 2015 that the 6 year period of the use of agricultural property for farming by the beneficiary or by a lessee runs from the valuation date. Accordingly, if any of the following events occurs within 6 years of the valuation date agricultural relief may be withdrawn:
- Cessation of farming by the beneficiary without leasing the land to a lessee who farms the land for the remainder of the 6 year period
- Disposal of the agricultural property without reinvestment in further agricultural property that is farmed by the beneficiary or by a lessee for the remainder of the 6 year period.
Where a taxable gift or a taxable inheritance is taken by a beneficiary subject to the condition that the whole or part of that taxable gift or taxable inheritance will be invested in agricultural property and such condition is complied with within 2 years after the date of the gift or the date of the inheritance, then the gift or inheritance is deemed to have consisted at the date of the gift or at the date of the inheritance and at the valuation date of agricultural property to the extent to which the gift or inheritance is subject to such condition and has been so invested.
The 6 year period of the lease/use of farming by the beneficiary will run from the date of the investment by the beneficiary in the agricultural property.
In accordance with self-assessment principles it is the taxpayer’s duty to make any necessary amendment to returns / self-assessments to ensure relief is withdrawn where appropriate.
Situations where a beneficiary is unable to initially commence farming
Where a beneficiary inherits agricultural property and intends to farm it, but is genuinely unable to do so immediately from the valuation date because of existing work commitments or other personal circumstances, the relief will not be refused where the beneficiary otherwise fulfils the requirements of the relief on taking up farming i.e. where the conditions of farming continue for 6 years from the date the farming is taken up. Examples of such situations include:
- The beneficiary may have existing work commitments that may take time to complete.
- The beneficiary may be living and working abroad, such that it may take time to organise a return to Ireland – including completion of existing work commitments.
- The beneficiary may be a full-time student whose studies are not completed.
Treatment of farm house and other assets
Where a beneficiary who takes a gift or inheritance of agricultural property, that includes agricultural land and a farm house, leases the land to an individual, a partnership or a company (that will farm the land for the minimum requisite 6 year period and will satisfy the farming conditions outlined above) but retains the farm house and resides in it as his or her only or main residence, Revenue will not seek to restrict any part of the agricultural relief, granted to the beneficiary on the gift or inheritance, referable to the farmhouse itself in those circumstances. It is the agricultural land that determines whether the relief applies - hence the danger of separating the farmhouse and other buildings from the land by separate transfers. The farmhouse etc, without the land, is not agricultural property. Therefore, if a farmhouse on its own is transferred to a farmer it will not qualify for agricultural relief.
Similarly, if the agricultural property includes plant and machinery or livestock, but a lessee only requires the land, agricultural relief will not be restricted where the land comprises substantially the whole of the agricultural property
Other options if unable to qualify for Agriculture Relief
If agricultural property fails to qualify for Agricultural Relief from CAT, it may instead qualify for Business Relief from CAT, provided it satisfies the requirements for that relief. Business Relief operates by reducing the market value of “relevant business property” by 90% for CAT purposes. Shares in a company deriving their value from agricultural property do not qualify for Agricultural Relief but may qualify for Business Relief from CAT.
Revenue’s Frequently Asked Questions on Budget 2015 Changes
The Revenue Commissioners have published answers to Frequently Asked Questions changes relating to the changes to Agricultural Relief from CAT, introduced in Budget 2015. These can be accessed at Revenue eBrief No. 68/15 – Capital Acquisitions Tax - Agricultural Relief - Finance Act 2014 changes
Capital Gains Tax / Capital Acquisition Tax “same event” relief
If CGT and CAT is payable on the same event (for example, a gift of land by a parent to a child) any CGT paid by the parent can be used by the child as a credit against her/his CAT liability.
Lower interest rate on instalment payments for Capital Acquisition Tax due on gifts/inheritances of agricultural property
It is possible for CAT to be paid in instalments in certain circumstances. This option is available where a beneficiary takes an absolute interest in immovable property and/or a limited interest in any property, whether moveable or immovable. It is also available where a beneficiary takes a gift or inheritance of agricultural property and/or relevant business property which is movable property (e.g. livestock, machinery, stock). The interest rate is 0.0219% per day or part of day from 1 July 2009. Where the property taken is (moveable or immovable) agricultural property the rate at which interest is payable by instalments on the tax is reduced to a daily rate of 75% of the normal daily rate.