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Question: I recently lost my uncle. His death was quite sudden and came as a shock to the family. In his will, he left me his farm. I wasn’t really expecting this as he hadn’t discussed it with me before he passed. He obviously didn’t think it would happen so soon, and unfortunately, we hadn’t planned for this inheritance. The farm is valued at €1.2m, and my family would very much like for me to keep it. In theory, I would like to keep it, too. However, I’m concerned because I don’t seem to qualify for Agricultural Relief. Are there any ways for me to reduce my tax bill?
Answer: Firstly, we’d like to offer our condolences on the loss of your uncle. Inheriting a family farm is a significant milestone, albeit an unexpected one in your case. Discovering that you don’t qualify for Agricultural Relief can be disheartening, but let’s fully examine the situation to figure out where you stand and what options might be available to you.
You say Agricultural Relief isn’t available, but make sure you interrogate this in-depth before you fully discount it. Is it the case that you don’t meet the criteria for the Active Farmer Test? Or is it as a result of the Farmer Test that’s based on assets? Both tests need to be explored to establish the reasons for not qualifying.
Active farmer test
For example, with the Active Farmer Test, there may be an option to lease out the land to qualify. Or if the relief is being ruled out because of the Farmer Test, it’s important to understand which non-farming assets are disqualifying you. Are these assets all in your name, for example?
It’s also worth noting that dates play an important part in establishing these tests. These can be determined by taking ownership of the assets or delayed due to the structure of the will. Even in more straightforward cases where individuals seem to qualify, this needs to be considered, as any provisions putting loans against the estate may affect the dates and diminish the value of the agricultural assets.
Business relief
If you investigate the Agricultural Relief suggestions above and are sure you don’t qualify, please don’t lose heart at this initial setback. There may be other options available to you. For example, Business Relief could be a possibility if your uncle was farming right up to his death.
Business Relief is very similar to Agricultural Relief, except farmhouses will not qualify for Business Relief. Also land alone cannot qualify for this relief – it must pass with livestock and machinery as Business Relief will only apply to assets capable of continuing as a business post-transfer. You haven’t mentioned livestock or machinery in your question, so perhaps this relief won’t be applicable to you. If you have equipment or livestock, it’s definitely worth looking into.
Your Group B threshold of €32,500 will be available to reduce your taxable inheritance. The group thresholds are lifetime thresholds for gifts/inheritances, with the Group B threshold being the relevant one for gifts/inheritances from uncles, aunts, siblings, grandparents, etc.
After a full investigation, if you get good news and find that you are actually eligible for either Agricultural or Business Relief, the taxable value of the assets will be reduced by 90%. Given the value of land being inherited, some level of tax will be payable regardless.
Another thing to consider is that if your uncle was in a nursing home, any borrowings owed under the Fair Deal Scheme need to be satisfied from his estate prior to any distributions. This could provide you with an opportunity to push out the valuation date. If funds are being transferred to an estate to satisfy any loans, stamp duty will also need to be considered.
This is a lot to take in at a difficult time. We hope this advice helps to steer your next steps, but we also recommend that you get in touch with a professional agricultural tax advisor to discuss your specific circumstances.
It’s not an easy topic, but we always recommend that succession is considered early and often. We see many hard-working individuals falling short of reliefs as planning wasn’t done prior to the passing of a loved one. Nobody wants to see this happen. A proactive approach minimises stress, reduces the risk of disputes and paves the way for the sustained success of your farm for future generations.
While you can’t change your current situation, if you do hold onto your uncle’s farm, it’s worth thinking about the next generation so that it is more straightforward for them in years to come. Document your intentions and wishes clearly and legally. This will ensure a smooth transition.
We wish you every success as you take your next steps.
Marty Murphy is Head of Tax at Ifac, which is the professional services firm for farming, food and agribusinesses
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• The Ifac Irish farm report showed that of all farmers surveyed, 94% said farm succession planning presents a significant challenge.
• For succession planning, farmers need to explore Agriculture Relief, the Active Farmer test and Business Relief to see what they qualify for.
• For business relief, the taxable value of assets will be reduced by 90%.
• If you don’t qualify for Agricultural Relief, you need to interrogate this in depth before it’s fully discounted.
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