“We wish to transfer land to our only son who is living in London and will continue working there for another few years. We understand that in order for him to qualify for agricultural relief from capital acquisitions tax (CAT), he must pass the 80% farmer test and either farm the land for six years or lease it out to a farmer for six years. It is proving difficult to find a suitable candidate to rent. Consequently, can he rent the land back to his father? We are concerned that this will impact on his father’s entitlement to retirement relief from capital gains tax.”

Active farmer test

For transfers from 1 January 2015, an extra requirement was introduced in order to claim agricultural relief from CAT. The person being gifted/inheriting the farm must also either farm the land for six years from the date of the gift/inheritance or lease it out to a person who will farm it for six years. Where the beneficiary, ie your son, intends to start farming but is genuinely unable to do so immediately from the date of the gift because of existing work commitments or other personal circumstances, Revenue will accept that the six-year period can begin from the time that farming is taken up. However, this must occur within one year of the date of the gift. Consequently, as you have indicated that your son will most likely continue working in London for another few years, he will have to lease it out for six years from the date of the gift to a farmer.

However, if your son initially leases the land and decides within the six-year period to end the lease (provided the farmer leasing the land agrees) and to personally farm the land himself, relief will not be withdrawn.

Lease of land to father

There is nothing preventing your son from leasing the land back to his father. While his father may claim retirement relief from capital gains tax, it does not require him to retire in the general sense of the word. However, in order to satisfy the conditions of agricultural relief, the father must be an active farmer, ie be a qualified farmer and farm the land or if he does not have farming qualifications to spend not less than 50% of his normal working time farming the land. If the father continues to work full-time on the farm, he should have no issue in meeting the 50% normal working time test.

However, if he were to take up a job outside the farm after handing it over to his son, he would need to spend at least 50% of his normal working time farming the land, eg 20 hours out of his 40-hour week. Revenue has indicated that it is not envisaged that any additional records over and above those required for tax purposes generally should be necessary to establish that a person actively carries on farming activities.

It should normally be clear from the level of farming activity carried on and the normal books and records of the farm including purchases, sales, livestock records etc.

A farmer is not expected to keep a timesheet of hours worked on the farm.

Lease exemption

The income tax lease exemption which would enable the rental income on the lease to be earned income tax-free up to certain limits is not available on leases between connected parties, eg father and son. If the lease was to an unrelated party, your son could take up to €18,000 annual rental income and the value of BPS payment tax free where the lease is for six years, with the limit rising to €40,000 where the lease is for 15 years or more.

Stamp duty exemption

A condition of the exemption, is that the transferee, ie your son, must farm the land for at least 50% of his time for five years from the date of the gift. Thus, as it is intended that he will lease out the farm, this 50% requirement will not be met. However, rather than paying the standard rate of 2% stamp duty on non-residential property, he may qualify for consanguinity relief, which halves the rate of stamp duty on transfers between blood relatives to 1%.

Gifts/inheritances

It is important also to clarify that the active farmer test only applies for gifts/inheritances of land on/after 1 January 2015. For gifts/inheritances taken before that date, there is no requirement for the beneficiary to farm the land to avail of agricultural relief. They need only retain ownership of the land for six years from the date of the gift or inheritance. However, it may be more advantageous for the beneficiary to lease out the land long-term, especially if they are working full-time as income from the lease may be taken tax-free.

Clarification on contract-rearing dispute

On querying with the Department of Agriculture whether animals moved using form NBAS 31B may be sold by a contract rearer without the written authority or consent of the animal owner, the Department has clarified as follows: “When the animals are moved on to the contract rearer’s holding via the NBAS 31B form, they are then recorded in the herdnumber of the contract rearer in spite of the fact that they remain in the ownership of the original herdowner.

“However, as the Department has always emphasised, the AIM database does not record or reflect ownership of the animals.”

Consequently, it appears that the contract rearer may sell animals taken in under a B&B-type arrangement regardless of whether they use form NBAS 31A or NBAS 31B to record the movement.