CAT – Agricultural Relief

With the recent issue by Revenue of a list of Frequently Asked Questions dealing with Agricultural Relief (available at http://www.revenue.ie/en/practitioner/ebrief/2015/no-682015.html), I thought that this was a timely opportunity to look at the new provisions for this relief announced in the last budget.

To recap, this is a relief from CAT in respect of gifts and inheritances of agricultural assets which has the effect of reducing the market value of qualifying assets for the purposes of the CAT calculation by 90% where certain conditions are met. Historically the test that was applied was whether over 80% of the unencumbered (with the exception of a mortgage relating to their PPR) value of assets owned by the beneficiary as at the valuation date was comprised of agricultural assets, as defined. While there was a minimum holding period for these assets in order to ensure that a clawback of the relief did not arise (6 years except in the case of development land where the period is 10 years, although there is a grace period of one year to allow for reinvestment), no account was taken as to what use the assets would be put to or whether the asset ownership split altered after the valuation date.

As part of the Agri-Tax review it was recommended that changes be made to the operation of the relief. As there was no requirement as to use, this did not promote the productive use of the land. Naturally since the relief is quite valuable this was not a satisfactory outcome.

In addition to the 80% test an additional test has been introduced with effect from 1 January 2015. Under this the beneficiary must satisfy a number of activity tests. They can either

• Farm the land on a commercial basis with a view to the realisation of profits for a period of 6 years from the valuation date and hold a relevant farming qualification, as defined, or be in the process of obtaining one such that this will have been attained within a 4 year period from the date of gift/inheritance,

or

• Farm the land on a commercial basis with a view to the realisation of profits for a period of 6 years from the valuation date and throughout this period they must spend not less than 50% of their normal working time on the farm

or

• Lease the whole or substantially the whole of the agricultural property for a period of 6 years from the valuation date to a person who meets either of the other two criteria

The above requirements are more onerous on the beneficiary than before and it is critical that they are monitored on an ongoing basis due to the 6 year period for which these should be met. The FAQ’s which have been published shed more light on the interpretation by Revenue of these requirements in circumstances such as: where a farmer has an employment apart from the farm; where the activity tests cannot be met immediately; where the date of death and valuation date differ; how a lessee should be monitored; where a spouse farms the land. While these and the others are helpful in providing clarity, it should be noted that they are only Revenue’s interpretation/concessions and these can change over time.

The above is merely a summary of the new provisions and as each case would need to be considered on its own merits, advice should be sought before proceeding with any transfers. Contact your OSK Tax Advisor Niall Dempsey with your queries and comments.