Capital Acquisitions Tax (CAT) affects most farming families as it applies to gifts and inheritances of land between the generations. However, the availability of an important relief called Agricultural Relief ensures that little or no CAT is paid on the transfer/inheritance of the land.
The availability of the relief was restricted in the last Budget whereby a further condition was imposed for gifts and inheritances that take place on/after 1 January 2015. In order to avail of Agricultural Relief, the beneficiary must pass two tests:
1. Farmer Test – this requires that 80% of the beneficiary’s assets after taking the gift/inheritance must comprise of agricultural property. For example, if the beneficiary has a house with no mortgage worth €200,000, he would need to inherit/be gifted at least €800,000 worth of agricultural property in order to avail of the relief. If he has no house or non-agri assets of any significance, then he should be able to pass the Farmer Test easy enough.
2. Working Time Test – this requires the beneficiary either to farm the land or lease it out for six years from the date of the gift/inheritance. There are three ways to satisfy the Working Time Test as follows:
If the beneficiary has the Green Cert or its equivalent, he must farm the land for at least six years from the date of the gift/inheritance.If he does not have the Green Cert, he must farm it for at least 50% of his normal working time for six years from the date of the gift/inheritance. If he cannot farm it himself, he can lease it out for a minimum of six years to:i. a farmer who has the Green Cert and will farm it or
ii. a farmer who does not have the Green Cert but will spend not less than 50% of his normal working time farming the land.
As the Working Time Test is only applicable for gifts/inheritances from 1 January 2015, there was some confusion as to how that test would be applied from a practical perspective. However, Revenue issued an eBrief last week clarifying the answers to some frequently asked questions as follows:
What constitutes 50% of a person’s normal working time?
A 40-hour working week is taken as a normal working week. Consequently, a farmer who works 20 hours per week on the farm satisfies the requirement. If a person’s normal working time is somewhat less than 40 hours per week, the 50% requirement will be applied to the actual hours worked.
What about forestry land that does not require 20 hours work per week?
Revenue accepts that farming of forestry land may not require 50% of a person’s normal working time. If a farmer can demonstrate that the forestry is being actively managed on a commercial basis – even if much of the work is subcontracted to third parties – this together with the normal books and records required for tax purposes should be adequate to enable Revenue to determine whether relief is due.
What type of records will Revenue seek as evidence that the Working Time Test is being met?
A farmer is not expected to keep a timesheet of hours worked on the farm. It should normally be clear from the level of farming activity being carried on and the normal books and records of the farm including purchases, sales, livestock records, etc.
If a beneficiary cannot meet the Working Time Test immediately because of existing work commitments or other personal circumstances, will the relief be refused?
No, provided the beneficiary begins actively farming the land within one year after the valuation date of the gift/inheritance, ie normally the date of the grant of probate in an inheritance situation.
Can a beneficiary lease the land to several different people and still satisfy the Working Time Test?
Yes, provided each lease meets the conditions for the relief.
Is the beneficiary required to verify that the lessee can satisfy the Working Time Test?
Yes, the beneficiary should check the lessee’s farming qualifications if they are relevant. The lease should also contain a clause requiring the lessee to farm the land so as to satisfy the Working Time Test for the duration of the lease and provide that any breach of this requirement will result in a termination of the lease.
If the lease is terminated/surrendered within the six-year period, does this result in a clawback of the relief?
No, provided the beneficiary re-lets the farm within one year after the termination or surrender of the lease.
Where land is gifted/inherited by two or more persons jointly and a dispute arises between them as to the use of the land, eg they can’t agree whether to lease out the land or farm it themselves, will the relief be disallowed?
If the land is neither farmed nor leased for qualifying farming purposes, the relief does not apply. It is a matter for the owners to resolve any deadlock.
The person who wants to lease the land is farming through a company. If the beneficiary leases the land to this company, will the beneficiary qualify for the relief?
Yes, provided the main shareholder in the farming company is a working director who farms the land on behalf of the company and meets the active Farmer Test.
A beneficiary inherited land, stock, machinery and a farmhouse. He is leasing the land to a farmer but the lessee has no requirement for the stock, machinery and farmhouse. Can the beneficiary still qualify for relief?
Yes, provided substantially the whole of the agricultural property that was inherited is leased for qualifying farming purposes. Revenue will accept that substantially the whole of the property means at least 75% of the property by value.
Capital Acquisitions Tax (CAT) affects most farming families as it applies to gifts and inheritances of land between the generations. However, the availability of an important relief called Agricultural Relief ensures that little or no CAT is paid on the transfer/inheritance of the land.
The availability of the relief was restricted in the last Budget whereby a further condition was imposed for gifts and inheritances that take place on/after 1 January 2015. In order to avail of Agricultural Relief, the beneficiary must pass two tests:
1. Farmer Test – this requires that 80% of the beneficiary’s assets after taking the gift/inheritance must comprise of agricultural property. For example, if the beneficiary has a house with no mortgage worth €200,000, he would need to inherit/be gifted at least €800,000 worth of agricultural property in order to avail of the relief. If he has no house or non-agri assets of any significance, then he should be able to pass the Farmer Test easy enough.
2. Working Time Test – this requires the beneficiary either to farm the land or lease it out for six years from the date of the gift/inheritance. There are three ways to satisfy the Working Time Test as follows:
If the beneficiary has the Green Cert or its equivalent, he must farm the land for at least six years from the date of the gift/inheritance.If he does not have the Green Cert, he must farm it for at least 50% of his normal working time for six years from the date of the gift/inheritance. If he cannot farm it himself, he can lease it out for a minimum of six years to:i. a farmer who has the Green Cert and will farm it or
ii. a farmer who does not have the Green Cert but will spend not less than 50% of his normal working time farming the land.
As the Working Time Test is only applicable for gifts/inheritances from 1 January 2015, there was some confusion as to how that test would be applied from a practical perspective. However, Revenue issued an eBrief last week clarifying the answers to some frequently asked questions as follows:
What constitutes 50% of a person’s normal working time?
A 40-hour working week is taken as a normal working week. Consequently, a farmer who works 20 hours per week on the farm satisfies the requirement. If a person’s normal working time is somewhat less than 40 hours per week, the 50% requirement will be applied to the actual hours worked.
What about forestry land that does not require 20 hours work per week?
Revenue accepts that farming of forestry land may not require 50% of a person’s normal working time. If a farmer can demonstrate that the forestry is being actively managed on a commercial basis – even if much of the work is subcontracted to third parties – this together with the normal books and records required for tax purposes should be adequate to enable Revenue to determine whether relief is due.
What type of records will Revenue seek as evidence that the Working Time Test is being met?
A farmer is not expected to keep a timesheet of hours worked on the farm. It should normally be clear from the level of farming activity being carried on and the normal books and records of the farm including purchases, sales, livestock records, etc.
If a beneficiary cannot meet the Working Time Test immediately because of existing work commitments or other personal circumstances, will the relief be refused?
No, provided the beneficiary begins actively farming the land within one year after the valuation date of the gift/inheritance, ie normally the date of the grant of probate in an inheritance situation.
Can a beneficiary lease the land to several different people and still satisfy the Working Time Test?
Yes, provided each lease meets the conditions for the relief.
Is the beneficiary required to verify that the lessee can satisfy the Working Time Test?
Yes, the beneficiary should check the lessee’s farming qualifications if they are relevant. The lease should also contain a clause requiring the lessee to farm the land so as to satisfy the Working Time Test for the duration of the lease and provide that any breach of this requirement will result in a termination of the lease.
If the lease is terminated/surrendered within the six-year period, does this result in a clawback of the relief?
No, provided the beneficiary re-lets the farm within one year after the termination or surrender of the lease.
Where land is gifted/inherited by two or more persons jointly and a dispute arises between them as to the use of the land, eg they can’t agree whether to lease out the land or farm it themselves, will the relief be disallowed?
If the land is neither farmed nor leased for qualifying farming purposes, the relief does not apply. It is a matter for the owners to resolve any deadlock.
The person who wants to lease the land is farming through a company. If the beneficiary leases the land to this company, will the beneficiary qualify for the relief?
Yes, provided the main shareholder in the farming company is a working director who farms the land on behalf of the company and meets the active Farmer Test.
A beneficiary inherited land, stock, machinery and a farmhouse. He is leasing the land to a farmer but the lessee has no requirement for the stock, machinery and farmhouse. Can the beneficiary still qualify for relief?
Yes, provided substantially the whole of the agricultural property that was inherited is leased for qualifying farming purposes. Revenue will accept that substantially the whole of the property means at least 75% of the property by value.
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