I have been farming my father’s farm for 20 years. I bought half of it from him at that time, and have been running the place since. Dad is semi-retired but still legally owns the other half. He hasn’t been doing accounts for his half.
When the time comes for me to take full ownership, I’m worried I’ll be facing a big inheritance tax or Capital Gains Tax bill. The whole farm would be worth about €300,000 now. Have I a major problem coming down the line?
ANSWER: You are in a position that is very common on Irish farms. One generation eases back. The next takes on the work. The paperwork never quite catches up. Everything runs smoothly year to year until someone starts thinking about tax, nursing home costs or succession.
Is your father still farming?
There are a few strands here:
The first issue is not inheritance tax. It is how the farm is currently structured for income tax purposes.
Your father owns 50% of the land. That does not automatically mean he is farming. What matters is:
Whose name is the herd number in?Is there a registered partnership?Are you paying your father rent?Who is returning the farm profits each year?If you have been returning all the farm income yourself as a sole trader and no rent is being paid, then the position may simply be that legal ownership and day-to-day farming differ.
If there is a joint herd number or an implied partnership and your father is technically entitled to profits, that needs to be regularised. Any unresolved income tax position would need to be addressed before a transfer takes place or before an estate is administered.
That is the first conversation to have with your adviser.
Remaining half transfers
If your father transfers his 50% share to you during his lifetime, three taxes are considered:
Capital Gains Tax (his liability).Capital Acquisitions Tax (your liability).Stamp duty (payable by you).On the figures you mention, the total farm value is €300,000 so the half share is worth €150,000. In genuine family farm transfers, the reliefs are strong.
If your father is over 55 and meets the normal conditions, Retirement Relief can eliminate Capital Gains Tax (CGT) on a transfer to a child.
On your side, as a child, you benefit from the Group A threshold. Agricultural Relief can also reduce the taxable value of qualifying farmland by 90%, provided the conditions are met.
That can reduce a €150,000 transfer to a much smaller taxable figure.
Stamp duty on agricultural land is currently 7.5%, but reliefs such as Young Trained Farmer Relief or Consanguinity Relief may apply, depending on age and timing. An inheritance on death does not attract stamp duty.
Based on the values involved, it would be unusual to see a large tax bill arise where the reliefs apply.
If the land is left until death
If the transfer happens on death:
There is no Capital Gains Tax.Capital Acquisitions Tax still applies, but Agricultural Relief may be available.There is no stamp duty.Any outstanding tax liabilities must be cleared before probate is completed.From a tax point of view, both lifetime transfers and inheritances can work. The real difference is certainty and planning.
The Fair Deal angle
Another point often overlooked is the Fair Deal nursing home scheme.
If your father requires nursing home care, the means test looks at assets in his name.
Land that remains legally in his ownership and is not clearly structured as part of an active farm transfer can be treated as an asset for assessment. In certain circumstances, untransferred farmland can effectively be viewed as investment land for the calculation.
That can expose part of the value to the annual 7.5% contribution assessment (subject to the scheme rules).
Leaving land sitting in the older generation’s name can have implications beyond inheritance tax.
Your earlier purchase
You bought your half 20 years ago. That portion is yours outright and is not taxed again. The discussion relates only to the remaining 50%. So, are you facing a major problem?
Well, on a farm worth €300,000 in total, assuming the normal reliefs apply, it would be very unusual to see a significant tax liability arise.
The bigger risk is not a future inheritance tax bill. It is allowing:
The income tax position to remain unclear.Ownership to drift without a plan.Fair Deal exposure to arise unexpectedly.Decisions to be forced by illness rather than taken in good time.The sensible approach is to sit down now, review how the farm is assessed and decide whether a structured transfer makes sense while everyone is well and able to deal with it.
Tax rarely breaks Irish family farms. Delays and a lack of structure often do.
Marty Murphy.
Marty Murphy is head of tax at ifac, the professional services firm for farming, food and agribusiness.
I have been farming my father’s farm for 20 years. I bought half of it from him at that time, and have been running the place since. Dad is semi-retired but still legally owns the other half. He hasn’t been doing accounts for his half.
When the time comes for me to take full ownership, I’m worried I’ll be facing a big inheritance tax or Capital Gains Tax bill. The whole farm would be worth about €300,000 now. Have I a major problem coming down the line?
ANSWER: You are in a position that is very common on Irish farms. One generation eases back. The next takes on the work. The paperwork never quite catches up. Everything runs smoothly year to year until someone starts thinking about tax, nursing home costs or succession.
Is your father still farming?
There are a few strands here:
The first issue is not inheritance tax. It is how the farm is currently structured for income tax purposes.
Your father owns 50% of the land. That does not automatically mean he is farming. What matters is:
Whose name is the herd number in?Is there a registered partnership?Are you paying your father rent?Who is returning the farm profits each year?If you have been returning all the farm income yourself as a sole trader and no rent is being paid, then the position may simply be that legal ownership and day-to-day farming differ.
If there is a joint herd number or an implied partnership and your father is technically entitled to profits, that needs to be regularised. Any unresolved income tax position would need to be addressed before a transfer takes place or before an estate is administered.
That is the first conversation to have with your adviser.
Remaining half transfers
If your father transfers his 50% share to you during his lifetime, three taxes are considered:
Capital Gains Tax (his liability).Capital Acquisitions Tax (your liability).Stamp duty (payable by you).On the figures you mention, the total farm value is €300,000 so the half share is worth €150,000. In genuine family farm transfers, the reliefs are strong.
If your father is over 55 and meets the normal conditions, Retirement Relief can eliminate Capital Gains Tax (CGT) on a transfer to a child.
On your side, as a child, you benefit from the Group A threshold. Agricultural Relief can also reduce the taxable value of qualifying farmland by 90%, provided the conditions are met.
That can reduce a €150,000 transfer to a much smaller taxable figure.
Stamp duty on agricultural land is currently 7.5%, but reliefs such as Young Trained Farmer Relief or Consanguinity Relief may apply, depending on age and timing. An inheritance on death does not attract stamp duty.
Based on the values involved, it would be unusual to see a large tax bill arise where the reliefs apply.
If the land is left until death
If the transfer happens on death:
There is no Capital Gains Tax.Capital Acquisitions Tax still applies, but Agricultural Relief may be available.There is no stamp duty.Any outstanding tax liabilities must be cleared before probate is completed.From a tax point of view, both lifetime transfers and inheritances can work. The real difference is certainty and planning.
The Fair Deal angle
Another point often overlooked is the Fair Deal nursing home scheme.
If your father requires nursing home care, the means test looks at assets in his name.
Land that remains legally in his ownership and is not clearly structured as part of an active farm transfer can be treated as an asset for assessment. In certain circumstances, untransferred farmland can effectively be viewed as investment land for the calculation.
That can expose part of the value to the annual 7.5% contribution assessment (subject to the scheme rules).
Leaving land sitting in the older generation’s name can have implications beyond inheritance tax.
Your earlier purchase
You bought your half 20 years ago. That portion is yours outright and is not taxed again. The discussion relates only to the remaining 50%. So, are you facing a major problem?
Well, on a farm worth €300,000 in total, assuming the normal reliefs apply, it would be very unusual to see a significant tax liability arise.
The bigger risk is not a future inheritance tax bill. It is allowing:
The income tax position to remain unclear.Ownership to drift without a plan.Fair Deal exposure to arise unexpectedly.Decisions to be forced by illness rather than taken in good time.The sensible approach is to sit down now, review how the farm is assessed and decide whether a structured transfer makes sense while everyone is well and able to deal with it.
Tax rarely breaks Irish family farms. Delays and a lack of structure often do.
Marty Murphy.
Marty Murphy is head of tax at ifac, the professional services firm for farming, food and agribusiness.
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