“Can you please explain the tax relief available and how it operates, whereby a parent gifts you a lump sum and you subsequently purchase land within a specific time period?”

I have received a number of queries regarding this aspect of Agricultural Relief. It is worth being aware of the availability of the relief to avoid unnecessary wastage of the tax-free threshold – currently €225,000 – which a parent can avail of to gift assets to a child tax-free.

It is a feature of Irish family farm structures that if land is bought, it is often bought in the name of a “child” who is a new entrant/young trained farmer as opposed to being bought in the name of the parent. This is because the child is often able to avail of Young Trained Farmer Stamp Duty relief.

By qualifying for this relief, the child saves 2% stamp duty on the purchase price of the land which would be imposed if the land was bought in the parent’s name. The other benefit is that it can be easier for a younger farmer to get a loan to purchase the land, which land can then be used as security for that loan.

However, if the parent provides all or part of the money to purchase the farm this is regarded as a gift from the parent to the child. Currently a child is entitled to be gifted/inherit €225,000 tax free from their parents during their lifetime. Any gifts/inheritances in excess of this amount are liable to tax currently at 33%.

Agriculural Relief

However, a special relief called Agricultural Relief works to increase this tax-free threshold to the equivalent of €2.25m where agricultural assets are being gifted to/inherited by the child.

Where a child receives a gift or inheritance of cash subject to the condition that it is to be invested in agricultural property, the gift or inheritance will qualify for agricultural relief once the money is used to buy agricultural property within two years of the date of the gift or inheritance.

Consequently if a parent is providing some or all of the cash to purchase land which is intended to be owned by the child, the parent should confirm in writing that the money is being given on condition that it is to be invested in agricultural property within two years of the date of the gift or inheritance.

If non-agricultural assets such as cash or shares are being left to the farmer child under a will, the parent should consider stipulating in the will that the cash/shares are being left to the child on condition that the proceeds are invested in agricultural property within two years of the inheritance.

That way, the value of the cash/shares is reduced by 90% for tax purposes – eg, an inheritance of €100,000 cash has a taxable value of €10,000 after claiming agricultural relief, which can be set off against the €225,000 tax-free threshold.

In order to qualify for Agricultural Relief for gifts/inheritances on/after 1 January 2015, there are two tests that need to be passed.

1. Financial farmer test

This requires that 80% of the assets of the child are made up of agricultural property after taking the gift/inheritance. For example, if a child had a house registered in their sole name worth €200,000 with no mortgage, they would need to be gifted/inherit at least €800,000 worth of agricultural assets in order to meet this 80% test.

2. Active farmer test

This requires the child to either farm the land themselves for six years from the date of the gift/inheritance or to lease it out to a farmer for a minimum of six years. If the child has the Green Cert or its equivalent there is no minimum amount of time they must spend farming the land; they must farm the land on a commercial basis with a view to the realisation of profits.

If they do not have the Green Cert or its equivalent they must spend not less than 50% of their normal working time farming the land. Revenue accepts that a person’s normal working time (including on-farm and off-farm working time) approximates to 40 hours per week. Therefore, farmers with off-farm employment may qualify where they work on the farm for at least 20 hours per week, averaged over a year.

Assuming the child passes both tests, they will qualify to claim Agricultural Relief. The child does not have to apply to Revenue for the relief – they need simply claim the relief as part of their gift/inheritance tax return which they need to submit by 31 October following the gift/inheritance. If the gift/inheritance is taken between 1 September and 31 December, they need not file the return until 31 October the following year.

Thereafter, the child must retain the agricultural property for six years from the date of the gift/inheritance in order to prevent a clawback of the relief. However, they can dispose of the property within that six years and not trigger a clawback, provided the agricultural property is disposed of and is replaced within a year of such disposal by other agricultural property.