The increase of allowance on parent-to-child gifts and inheritances to €400,000 before capital acquisitions tax (CAT) has to be paid is a welcome measure included in Budget 2025.

However, there have been concerns raised by experts about another CAT measure, which was announced yesterday.

Minister for Finance Jack Chambers said that to address concerns that agricultural relief is being used as part of tax planning for wealthy individuals, he would extend the active-farmer test to the person who is providing the gift or the inheritance. While this looks like a good idea to keep farmland in the hands of farmers, in reality it may cause more problems than it solves.

Implications

Marty Murphy, head of tax at ifac, said that he is very concerned about the wide implications of the introduction of an active farmer test in these circumstances.

He gave the example of a scenario where a son or daughter has taken over the running of a farm for several years without having a formal lease agreement with their parent in place.

Here, the parent would not qualify as an active farmer and therefore their child would not be able to avail of relief when inheriting the land. If there is a family arrangement where one spouse owns the land in their own name, while the other farms it, relief will not be available on that land when it is transferred to the next generation as the owner will again fail the active farmer test.

Another area where the problem will arise is where landowners lose the capacity or ability to farm, or farm part-time while employed off farm, once again meaning they fail the active farmer test.