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Q. I am a farmer in my 60s with 3 adult children. My eldest son works fulltime on the farm and it is my intention that he will inherit the farm and the farm assets and that the farm remains in the family. The farm and land are valued at approx. €760,000. I have bank deposits and some life policies which, on my death, will be divided equally between my other two children. My understanding is that because their share will be less than the €280,000 threshold for each child that they will not have to pay inheritance tax.
A. Given the value of the farm, will my son be liable for inheritance or gift tax and if so how much? I understand that there is some exemption from inheritance tax for agricultural land. Can you clarify if this is the case and are there any restrictions?
You are correct in your thinking that your two other children will not be liable for Inheritance Tax (Capital Acquisitions Tax) as they are entitled to receive up to €280,000 each in assets from you before they would be subject to inheritance tax.
In normal circumstances your eldest son would be subject to inheritance tax on assets valued at €760,000 as this is above the €280,000 threshold. However, where the assets concerned are agricultural assets and your son is deemed to be a “qualified farmer” then agricultural relief should be available on the farm assets.
In summary the effect of agricultural relief is to reduce the value of agricultural assets by 90% in terms of valuing these assets for inheritance tax purposes. In your eldest son’s case this would reduce the value of the agricultural assets to €76,000. Therefore, as this is less than the €280,000 threshold he would not be subject to any inheritance tax.
There are some qualifying criteria and restrictions relating to this relief, the principal ones are outlined below.
What is Agricultural Relief?
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.
What is a ‘Qualifying Farmer’?
To qualify for agricultural relief, the person receiving the gift or inheritance must be a ‘farmer’ at the Valuation Date. For the purposes of the relief, a ‘farmer’ is an individual in respect of whom at least 80% of his or her assets, after taking a gift or inheritance, consist of agricultural property on the valuation date of the gift or the inheritance.
The ‘80%’ test does not apply in the case of agricultural property consisting of trees and underwood.
Can the Relief Be Withdrawn or Clawed Back?
Yes. There are a number of circumstances in which the relief can be withdrawn or partially clawed back.
If the property is sold :
In general, the relief is withdrawn where the agricultural property is sold (or compulsorily acquired) within six years of the date of the gift or inheritance and is not replaced within one year of the sale of or within six years of the compulsorily acquisition by other agricultural property.
The withdrawal, or partial clawback, of the relief does not apply in relation to the sale of crops or timber, or where the beneficiary dies before the sale or compulsory acquisition
Where land which qualified for agricultural property is disposed of in whole or in part, by the donee or successor, in the period commencing 6 years after the date of the gift or inheritance and ending 10 years after that date, the relief granted will be clawed back in respect of the development value of that land at the valuation date of the gift or inheritance.
For advice on estate and succession planning and all other aspects of financial planning you should consult Money Plus, your local independent financial broker. In this regard Belinda McCauley and her colleagues at Money Plus, Bridge St, Boyle would be delighted to assist you. Belinda can be contacted at 071-9194000/ 086-7847827 or by email: [email protected].