Will changes to agricultural relief and the tax exemptions for long-term land leases feature in the budget next week?

There is mounting concern among farm consultants and other professionals working in the farm sector that agricultural relief and the tax exemptions available on long-term leases are adding to the inflationary pressures on an already red-hot land market.

This is restricting the capacity of full-time farmers to purchase farmland and thereby secure the long-term viability of their farm businesses, some farm consultants contend.

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Agricultural relief reduces the taxable value of land by 90% for the purposes of Capital Acquisitions Tax (CAT) where the applicant meets the necessary qualifying conditions.

Well-known farm consultant Tom Canning said both agricultural relief and the tax exemptions for long-term leases were issues that he and other farm advisers are regularly coming across.

“We’re seeing a lot of intense competition for land, and this is putting the price in many instances beyond the realms of what is feasible for the local full-time farmer,” Canning said.

While there is widespread agreement that agricultural relief is an important instrument for the transfer of commercial farmland from one generation to the next, the fact that it is available to parties who could not in reality be classed as full-time farmers was a source of real frustration, Canning claimed.

“That is the sentiment that is expressed by a lot of farmers,” he insisted.

Canning maintained that there was an obvious way of restricting access to agricultural relief.

“In order for someone to qualify for agricultural relief they should be registered with Revenue as a farmer from a tax point of view,” he said.

It has also been suggested that the 90% relief should apply up to a threshold of possibly €400,000 or an asset value of €4m. A reducing rate of relief would then apply above this threshold.

Agricultural relief has a track record of being used by the country’s super-rich as a tax-efficient mechanism for the inter-generational transfer of wealth.

Well-known agribusiness consultant and barrister Ciaran Dolan agreed there is a need to look again at the relief.

“Agricultural relief is being used for a purpose that it was never intended. And that is, for wealth from outside the farming sector to be transferred to the next generation,” he maintained.

Dolan said there were a number of considerations which the Government might seek to address regarding operation of the agricultural relief as it currently stands.

“Should the leakage of tax revenue due to the relief be allowed to continue? Is it actually inflating land prices? And is it actually causing problems in relation to the necessary expansion that must take place in order to make some [farm] holdings viable?” he asked.

Dolan said extreme caution should be exercised when considering changes to the agricultural relief as unintended consequences were a distinct possibility. And he agreed with Ifac that changes to the legislation relating to agricultural relief, which were due to come in to force following last year’s budget, would have created serious issues for ordinary farmers had they not been shelved.

These changes sought to impose an ‘active farmer’ test on not just the person receiving the land, but also on the person giving the land.

The proposed changes were put on hold by the Government following intensive lobbying by tax experts such as Ifac and the farm organisations.

“Any changes will require a lot of very careful drafting of legislation in order that it doesn’t have detrimental effects down the line,” Dolan cautioned.

However, he maintained that it is possible to restrict access to agricultural relief.

“With proper drafting, it should be possible to prevent or substantially reduce the abuse of the measure,” Dolan said.

The impact of agricultural relief on the land market has been compounded by the attractive tax exemptions available to those who rent out land in long-term leases.

These tax exemptions had attracted non-farming investors into the land market.

However, restrictions which stipulate that lands must be owned for seven years to qualify for tax exemptions on long-term leases has reduced the attractiveness of purchasing land to lease and has taken some speculator and investor interest out of the market. This seven-year clause was introduced in January 2024.

Roscommon-based auctioneer, John Earley, said that the changes to the leasing rules had largely taken out the non-farming investors, while Wexford-Wicklow auctioneer David Quinn claimed the non-farmer buyer was now “a rarity” in the southeast.

In contrast, north Cork auctioneer Eamonn O’Brien estimated that around 8-10% of the land he sold so far this year still went to non-farming investors. The figure was around 15% prior to the introduction of the seven-year rule.

That up to 10% of farmland in the Cork area is still being purchased by investors this year has illustrated its continuing popularity as a safe haven for wealth, O’Brien maintained. And it confirmed the attractiveness of agricultural relief as a tax-efficient mechanism to transfer that wealth from one generation to the next, he added.

Will the relief remain in its current form? We’ll see next week.