Revenue recently clarified that forestry operations should not be regarded as 'making or holding investments’ for Capital Acquisitions Tax (CAT) purposes. This will enable more forestry businesses to achieve CAT savings. Currently, an estimated 335,830 hectares of Irish forestry is privately owned with farmers accounting for around 83 percent of this. Statistics for 2015 showed that 45 percent of owners are aged 60 or more highlighting the urgent need for succession planning in this sector.
Where an individual who inherits or receives a gift of agricultural property qualifies as a farmer, they may be eligible to claim Agricultural Relief. This reduces the taxable value of the property by 90%.
To qualify as a farmer, the value of agricultural property must make up 80% of the total property value on the valuation date.
In addition, for gifts or inheritances on or after 1 January 2015, the beneficiary must farm or lease the agricultural property on a commercial basis for at least 6 years commencing on the valuation date. The beneficiary (or lessee) must have an appropriate agricultural qualification and farm the property for at least 50 percent of his or her normal working time.
In the case of forestry, Revenue recognises that this is generally less labour intensive than other forms of farming and can be actively farmed on a commercial basis even though it may not require 50% of a person's normal working time. Consequently, where a farmer can show that forestry is 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, will usually enable Revenue to determine whether relief is due.
Agricultural relief can be withdrawn if the agricultural property is disposed of within 6 years from the date of the inheritance or gift and the proceeds of disposal are not appropriately reinvested.
Total forest area (ha) by county.
An individual who does not qualify for Agricultural Relief may qualify for Business Relief. Again, this reduces the taxable value of relevant business property by 90 percent.
For the purposes of Business Relief, a business is any activity, trade, profession or vocation which generates income or profits over time. Certain businesses, however, are excluded. These include businesses dealing completely or mainly in currencies, securities, stocks or shares, land or buildings, and making or holding investments.
Until recently, companies involved in forestry and woodland operations risked exclusion from eligibility for Business Relief if they were regarded as ‘making or holding investments’. Following, Revenue’s recent clarification, this is no longer the case. There are, however, other rules to comply with. For example, businesses must meet the definition of ‘relevant business property’.
Assets not used for the purposes of the business, purchased two or more years before the gift or inheritance and not used completely or mainly for the purposes of the business, and any new business bought by a company within the minimum ownership period are not included in the calculation of Business Relief.
In addition, with some exceptions, the person making the gift or inheritance must have owned the relevant business property for at least five years for a gift, and at least two years for an inheritance.
As with Agricultural Relief, Business Relief may be withdrawn if the agricultural property is disposed of within 6 years from the date of the inheritance or gift.
Capital Acquisitions Tax is a complicated area and one where mistakes can prove extremely costly. It is advisable, therefore, for woodland and forestry business owners to obtain professional advice on how to structure their affairs so as to secure the business and minimise the future tax liabilities of their successors.
Forestry mapped across Ireland