Civil servants have scoped out the possibility of introducing new and potentially radical land purchasing restrictions in a bid to clamp down on non-farmers using agricultural relief to avoid inheritance tax.

Agricultural relief writes down a farm’s valuation by 90% for the purposes of calculating capital acquisitions tax, which with other farm sector reliefs, can allow a farm worth up to €4m to be transferred without paying the tax.

The relief is intended to “protect family farms from needing to be sold or broken up to pay high inheritance or gift tax liabilities” while ensuring that qualifying assets are “actively farmed”.

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The possibility of addressing non-farmer use of the relief through non-tax land purchasing restrictions was discussed by the Department of Finance-led tax strategy group made up of senior Government advisers and Department officials.

The non-taxation restrictions targeting non-farmer investors were floated against a backdrop of farm sector fear that tightening the eligibility criteria for agricultural relief could inadvertently shut out genuine, but difficult, family farm inheritance cases.

EU measures

The group’s new paper on capital taxes outlined the restrictions in place across seven formerly-Communist EU countries in 2021 on the purchase of land that it said could solve the task of ensuring all genuine farmers can access reliefs – while excluding non-farmers from availing from them.

The countries listed and the measures they have in place are:

  • Hungary - only registered farmers buy farmland parcels of larger than 1ha.
  • Lithuania - farmland larger than 10ha can only be bought if used for farming activity for at least five years after purchase.
  • Slovakia - agricultural land may only be acquired if farming is carried out for at least three years before the acquisition contract is up.
  • Latvia - those who own more than 10ha (for a natural person) or 5ha (for an entity, such as a company or trust) must confirm that farming activity will begin within one year of purchase.
  • Bulgaria - natural persons must be residents and legal entities must have been established in Bulgaria for a minimum of five years to acquire agricultural land.
  • Romania - where no pre-emptor plans on buying farmland, preference in purchase rights is granted to individuals or entities already farming in Romania.
  • Poland - non-farmers may only purchase plots of farmland smaller than 1ha.

    • It was noted that the main intent of these countries’ restrictions is to prevent investors from other EU countries weighing in on their land markets.

    “If such a measure were to be introduced here, it would be specifically intended to promote the active farming of the land, rather than placing any cap on the ability of intra-EU investment in farmland,” the document states.

    The implementation of any of the non-tax “genuine farmer” policy options discussed by the tax group was said to fall under the Department of Agriculture’s remit.

    Backdrop to the assessment

    A planned Budget 2025 tightening of agricultural relief eligibility marked an attempt to tackle what former-minister for agriculture Charlie McConalogue coined the “high roller” non-farmer interests in the land market.

    The changes announced would have required the individual passing on the land to have owned and farmed it for at least six years before the transfer, with those who had received land having to own and farm it for another six years after they took it over.

    However, the move has not made it off the shelf after almost two years of talks between the relevant Government departments and farm groups aimed at ensuring that “genuine farmers in particular circumstances” are not hit with hefty tax bills.

    The tax group’s paper references the potential for inheritance cases to arise where either of the six-year active farming eligibility requirements may not have been met, due to death or illness, as a risk of pushing ahead with the revision.

    Options on table

    The group laid out three possible policy options for the agricultural relief eligibility changes put forward in 2024, but not enacted since:

  • Push ahead with the plans, which would require “accepting that there would be some consequences for a small group of farmers”.
  • Scrap the plans and accept that their impact would prove “too significant to justify introducing such a measure”.
  • Develop a “new revised Agricultural Relief” such as the model operating in the UK.