“We wish to transfer our farm to our son. We are concerned that we will be liable for tax on the transfer with the tax changes to the different agricultural reliefs from 1 January 2015. We could try to transfer the farm before the end of the year, but our son will not qualify for agricultural relief from gift tax, which would give rise to a large tax bill. Is there anything we can do to reduce this potential tax bill before we transfer?”

The changes to the agricultural reliefs coming in from 1 January 2015 which could affect you are agricultural relief for capital acquisitions tax (CAT) and consanguinity relief from stamp duty.

Thus, if you qualify for CGT retirement relief, you should continue to do so if the transfer occurs after 1 January 2015. If your son qualifies for young trained farmer relief from stamp duty, he should continue to do so if the transfer occurs in the new year.

Further, if he does not qualify for young trained farmer relief, he will still be eligible to claim consanguinity relief, whereby stamp duty is reduced from 2% to 1%, provided he will be farming the land or will lease it out for a minimum of six years to a farmer.

If your son does not qualify for agricultural relief, all is not lost as he may be entitled to qualify for business relief. The relief applies to gifts or inheritances taken of “relevant business property” which has been owned by you for the relevant period immediately prior to the gift/inheritance.

What is relevant business property?

This is defined as including property consisting of a business or interest in a business, for example a sole trade or an interest in a partnership. Business is defined as one which is carried on for gain.

If you are using the land to be transferred as part of your farming business, it should qualify for the relief provided the farming business is also transferred. For example, if you transferred a parcel of land, but not the farming business, it would not qualify for the relief; you must also transfer the farming business. If the farm is being farmed by a partnership, the farm will continue to qualify for business relief notwithstanding that it is farmed by the partnership rather than by you as sole traders.

Relevant business property includes any land or buildings, plant or machinery owned by you but used mainly for the purposes of a business carried on by a partnership in which you are a partner.

However, the partnership interest must be taken by your son (the beneficiary) with the lands, building, plant or machinery in order for those assets to qualify for the relief. As the majority of farm transfers see the successor step into the shoes of the parents transferring the agricultural property, the transfer should qualify for business relief.

What is the minimum ownership period?

The relevant business property must have been owned by you (the disponers) for a minimum period prior to the transfer. The minimum period is five years in the case of a gift or two years in the case of an inheritance.

A period of ownership by a disposer’s spouse will count for the purposes of satisfying the minimum ownership period. Also relevant business property which has replaced other property within the relevant period will qualify for the relief, eg machinery, stock, etc. This is provided that the replaced property would have qualified as relevant business property and the original property and replacement property were owned for at least five years out of the six-year period immediately prior to the date of the gift. This is reduced to at least two years of the three-year period in the case of an inheritance.

What is the extent of the relief?

From a practical viewpoint, the relief works in a similar fashion to agricultural relief, whereby there is a 90% reduction on the taxable value of the property. As a child is entitled to receive up to €225,000 tax-free from parents, if the child is entitled to claim business relief, this equates to being able to receive a gift of relevant business property with a value up to €2.25m tax-free from parents.

What’s the difference between business relief and agricultural relief?

The main difference is that the farmhouse will usually qualify for agricultural relief but not for business relief. Also if the farmland is rented out, it may not qualify for business relief but could qualify for agricultural relief.

Consequently, it is often seen as more advantageous to qualify for agricultural relief rather than business relief.

However, if you are currently farming the land and are transferring it over to your son as a going concern, the availability of business relief should work to the same extent as agricultural relief in reducing your son’s gift tax bill to nil assuming the value of the farm business being transferred does not exceed €2.25m.