Agricultural Relief from Capital Acquisition Tax. The new rules
Additional rules apply to gifts or inheritances of agricultural property taken on or after 1 January 2015 and that have a valuation date on or after 1 January 2015. There is now a focus on giving relief to active farmers.
Farming Relief - Capital Acquisition Tax
If a person qualifies for agricultural relief then the person is only liable to tax on 10% of the market value of the agricultural property received in the benefit and obtains 90% of the market value tax free so many persons will wish to qualify for the relief.
The relevant legislation is section 89 of the Capital Acquisition Tax Consolidation Act 2003 (as amended up to Finance Act 2014).
Agricultural Property for CAT
Agricultural property is defined as: (a) land, pasture and woodland situate in a Member State and crops, trees and underwood growing on such land and also includes such farm buildings, farm houses and mansion houses (together with the lands occupied with such farm buildings, farm houses and mansion houses) as are of a character appropriate to the property, and farm machinery, livestock and bloodstock on such property; and (b) a payment entitlement (within the meaning of Council Regulation (EC) No. 1782/2003 of 29 September 2003).(EU Single farm payment entitlement).
A benefit received subject to the condition that it be invested in agricultural property will be deemed to qualify as agricultural property if the investment in agricultural property is made within 2 years after the date of the benefit. In such circumstances the time period of 6 years for the conditions will run from the date of investment in the agricultural property.
Conditions to satisfy to qualify for relief:
1. The property must fall within the definition of agricultural property as at the date of the benefit and at the valuation date;
2. Farmer financial test as at the valuation date (unchanged); After receiving the agricultural property 80% of the person's worldwide assets (at gross market value*) to which the person is deemed to be beneficially entitled in possession must be agricultural property within a Member State(s) of the EU.
3. Ongoing farmer activity test to be met at the valuation date (from 1 January 2015).
The recipient of the benefit must:
a. Hold an agricultural qualification (qualified farmer qualification (qualifications listed in Schedule 2, 2A or 2B to the Stamp Duties Consolidation Act 1999)) (or who achieves such a qualification within 4 years of the date of the benefit) and farms the agricultural property (to include the agricultural property received in the benefit) on a commercial basis with a view to profit for a period of 6 years from the valuation date (or the date the farming is commenced if earlier);
b. Spend not less than 50% of his/her normal working week farming agricultural property (to include the agricultural property received in the benefit) on a commercial basis with a view to profit for a period of 6 years from the valuation date (or the date the farming is commenced if earlier); or
c. Lease the whole or a substantial part of the agricultural property to a person who fulfils the conditions outlined in a. or b. for a period of 6 years from the valuation date (or the date the farming is commenced if earlier).
To satisfy condition c. the agricultural property can be leased to a number of lessees, each lessee and lease must meet the conditions of the relief. A lease can be to an individual, a partnership or to a company (provided the main shareholder and working director farms the agricultural property on behalf of the company).
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The material in this article is for general information purposes only and does not constitute legal or taxation advice. Specific legal and taxation advice should be sought before acting. All information and taxation rules are subject to change without notice.
No liability whatsoever is accepted by M. McLoughlin & Co. for any action taken in reliance on the information in this article