Agricultural Relief for Capital Acquisitions Tax
Beneficiaries who inherit agricultural property or receive it by way of a gift may be able to claim Agricultural Relief to reduce their Capital Acquisitions Tax liability. Where it applies, beneficiaries benefit from a 90% reduction in the tax payable otherwise.
Agricultural property is defined as Agricultural land, pasture & woodland located within the European Union, crops, trees and underwood growing on land, farm buildings, houses appropriate to the property and farm machinery, livestock and bloodstock on such property. If the property qualifies for the European Union single farm entitlement it will also be deemed to be agricultural property.
There is a two-step test to be satisfied for a beneficiary to qualify for Agricultural Relief;
- The first step is the Farmer Test. To pass this test the agricultural part of the property must be at least 80% of the market value of the overall property inherited or gifted. This property must be located in the EU.
- The second step is the Farmer Activity Test. This relates to benefits taken on or after the 1st January 2015. To satisfy this step of the test the beneficiary must hold a Stamp Duty or “young trained farmer” qualification. The farmer must also farm the agricultural property for not less than 50% of their normal working time. Normal working time is deemed to be 40 hours per week.
Alternatively, the beneficiary can lease the property for 6 years to a lessee who has relevant qualification and is farming for not less than 50% of normal working time.
To avoid a clawback on the relief from Revenue the property must be farmed for a period of not less than 6 years commencing on the valuation date.
The rate of Capital Acquisitions Tax is currently calculated at 33% of the market value of the property. If an agricultural property is valued at €1,000,000 and Agricultural Relief is applied (giving a 90% reduction to the taxable value of the property) the taxable value will then be €100,000. The tax payable will then be 33% of €100,000, so the Capital Acquisitions Tax payable will now be €33,000 instead of the €330,000 that it would have been if the relief had not been applied.
It may also be possible to set off other expenses, costs and liabilities against the tax liability and beneficiaries may be able to utilise their tax thresholds to further reduce or avoid the payment of tax.
It is possible that a person who is not entitled to Agricultural Relief may instead qualify for Business Relief.
For further information on Agricultural Relief please contact Thomas Norris on 051 877029 or tom@mwkeller.ie
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