Agricultural Relief, a crucial tax benefit for those receiving gifts or inheritances of agricultural property, has long been a means of reducing the taxable value of such properties by 90%. This relief supports the transfer of farms from one generation to the next, making it easier for young people to continue farming and pursue lives on family farms.
However, as land values have increased above inflation, particularly in recent years, it has become increasingly difficult for genuine farmers to purchase the land they need. This difficulty has been compounded by concerns from the government that Agricultural Relief may be used as part of tax planning strategies by wealthy individuals rather than for its intended purpose of supporting family farms.
As a result, the government has proposed extending the six-year active farmer test to the person providing the gift or inheritance of agricultural property. This extension introduces new conditions that both the donor and the recipient must meet, which could have far-reaching consequences for those planning to transfer farms to the next generation.
Marty Murphy, our Head of Tax at ifac, outlined the potential impact of these proposed changes. According to the policy documents, the donor must meet the six-year active farmer test for the beneficiary to qualify for Agricultural Relief. This means that in addition to the recipient, the person providing the gift or inheritance must also meet the requirements, such as farming the agricultural property on a commercial basis for at least six years or leasing the property to a farmer who meets the same conditions.
Impact on Farmers: Common Scenarios
The following 13 scenarios illustrate the practical impact of these changes and the potential challenges they pose for genuine farmers and their families.
Substantially All Condition for Active Farmer Test
John has farmed 60 acres since 1972, inheriting an additional 40 acres in 1980. After leasing the 40 acres in 2018 on a six year lease, John plans to transfer his 100 acres to his son, who has a green cert, in 2025. Under the new rules, because John only leased 40% of the land, he does not meet the active farmer test. As a result, his son will not qualify for Agricultural Relief on any of the 100 acres, though Business Relief may still apply to the 60-acre home farm.
No Formal Lease or Farming Activity
In a similar scenario to above, John becomes ill in 2018 and moves into a nursing home, leaving his son to farm the land informally without a lease. Despite the son taking over the farming operation, the lack of a formal lease disqualifies John from meeting the active farmer test. Therefore, no Agricultural Relief will be available to the son upon inheriting the land.
Farmhouse Issue
Mary is a widow whose late husband farmed 200 acres in partnership with their daughter, Jane. Upon the husband's death, Mary inherited the family farmhouse, valued at €400,000, and 30 acres of land worth €600,000. Jane, the daughter, inherited the remaining 170 acres, valued at €3.4 million. At the time of the inheritance, Jane availed of Agricultural Property Relief and paid just €1,650 in Capital Acquisitions Tax (CAT), owing to her qualification for the relief as a full-time farmer holding a green cert.
When Mary passes away, Jane inherits the farmhouse and 30 acres. Under the proposed amendments, Jane faces a significant issue because the farmhouse makes up 40% of Mary’s agricultural assets, meaning Mary fails the "substantially all" condition (requiring 75% of assets to be leased or farmed). As a result, Jane cannot claim Agricultural Relief on either the house or the land. Assuming she qualifies for Dwelling House Exemption (DHE) on the farmhouse, Jane will still face a CAT liability of €178,200 on the 30 acres.
If the farmhouse were not considered part of the agricultural property (e.g., if it were off-site), Jane could have claimed full Agricultural Relief, potentially reducing her CAT liability to nil. However, the proposed amendments result in an unexpected tax burden, despite Jane being a full-time farmer who meets all other conditions.
Interaction with Retirement Relief and Deferred Transfers
Michael leased his farm to his son in 2003 on a ten year lease. This lease expired in 2013. No rent has changed hands between the father and son since this date by agreement although the son does pay for some of the fathers costs. Now, wanting to transfer ownership, he discovers that he cannot qualify for Agricultural Relief due to the proposed changes as he has neither farmed nor leased the land in the last 6 years. To ensure eligibility, instead of transferring the land now, Michael and his son plan to form a partnership and farm together for six years, such that Agricultural Relief is available after this 6 year period or alternatively enabling the son to avail of Business Property Relief. However, because the land has been let for over 25 years, Michael loses eligibility for Retirement Relief. The transfer is thus delayed indefinitely.
Other common scenarios where landowners lose capacity or ability to farm, or farm part-time while employed off-farm will also be caught by these new provisions if implemented as assumed above. Instead of encouraging the transfer of land to the next generation it is likely that advisors will suggest amendments to farming or leasing structures such that Business Relief is available instead.
School Principal Scenario
Frank, a 55-year-old School Principal, owns 50 acres of land valued at €500,000. Although he stocks the land with sheep and sells silage, Frank does not have a green cert and does not farm for more than 20+ hours a week, meaning he does not meet the requirements for the active farmer test. Frank, who is single and has no children, leaves his land to his brother, a full-time farmer who farms 300 acres next door, in his will, with the rest of his estate going to other family members.
When Frank dies unexpectedly, his brother inherits the 50 acres. However, since Frank did not meet the active farmer conditions, his brother is unable to claim Agricultural Relief on the inherited land. As a result, despite being a full-time farmer himself, Frank’s brother now faces a CAT liability of €151,800 on the inheritance.
Farmland and Potatoes
Marty owns 500 acres of tillage land, which he primarily farms, but he allows a potato farmer to rent different plots of land on rotation. The potato farmer takes 50 acres some years and 70 acres in other years, never using the same fields within a six-year period. Marty’s crop rotation follows this pattern, planting suitable crops after the potato fields are harvested. Over the six years before Marty’s death, the potato farmer used a total of 300 acres of Marty’s land on this rotating basis.
When Marty dies and leaves the 500 acres to his daughter, a problem arises. During the six years prior to his death, Marty neither leased the land nor actively farmed the specific plots used by the potato farmer, meaning he fails the active farmer test on 300 acres. Since the legislation does not specify if the active farmer test applies on a pro-rata basis or to the entire property, it is possible that Marty’s daughter will not be able to claim Agricultural Relief on the entire farm, despite Marty’s overall farming activity. This creates uncertainty and could result in a significant tax liability for the daughter.
Woodland Scenario
Jim farms 30 acres and leases out the remaining 40 acres of forestry. Since the forestry land was not included in the lease, Jim does not meet the “substantially all” requirement under the active farmer test, disqualifying him from Agricultural Relief.
Woodland and Solar Scenario
Jim owns 150 acres of land and a farmhouse. Of his land, 60 acres are under forestry, 30 acres are leased for a solar farm, and the remaining 60 acres are leased to his son, James, who holds a green cert and farms in partnership with his uncle on adjacent land. James is set to inherit all of Jim’s land, as well as his uncle’s.
When Jim dies eight years after setting up these leases, James inherits the farmhouse and the entire 150 acres. The total inheritance includes a farmhouse worth €300,000, timber valued at €800,000, forestry land valued at €180,000, solar-leased land worth €700,000, and the remaining agricultural land worth €800,000—resulting in a total inheritance value of €2.78 million. However, the issue arises with the active farmer test, which requires "substantially all" of the agricultural property (75%) to be farmed or leased to a farmer.
Although Jim leased €1.5 million worth of land (comprising the solar and agricultural leases), the remaining forestry land complicates matters. Under the current interpretation of the rules, Jim does not satisfy the "substantially all" test, meaning James cannot claim Agricultural Relief on the full inheritance. While the forestry land may qualify for Business Property Relief (BPR), neither the farmhouse, solar-leased land, nor the remaining agricultural land will qualify for Agricultural Relief.
As a result, James's CAT computation looks like this:
Total inheritance: €2,780,000
Less BPR on forestry: (€882,000)
Less Group A threshold: (€400,000)
Taxable inheritance: €1,498,000
CAT payable: €494,340
Had Jim not owned the forestry land, James could have qualified for full Agricultural Relief. Ironically, the forestry land being categorised as agricultural property has caused James to lose Agricultural Relief on the other agricultural assets, leading to a significant tax liability.
Woodland and Solar (Continued)
Similar scenario to above however, Jim leases 60 acres to a solar company and 30 acres to his son James for farming in partnership, while 60 acres are under forestry. Under Agricultural Relief, land leased for solar use can qualify as agricultural property if at least 50% of the land is actively farmed. However, forestry land does not count toward this 50% test, meaning Jim’s 90 acres (30 farmland and 60 forestry) does not meet the required threshold. As a result, the 60 acres leased for solar do not qualify for Agricultural Relief. This causes James, who inherits the land, to lose relief on the solar-leased portion, despite his full-time farming activities. The differentiation between forestry and agricultural land creates a significant tax burden for James.
Successive Benefits
John leaves his farm to his wife, Mary, who upon his death begins to farm in partnership with their daughter. Mary dies 1 year after inheriting the land. Because Mary did not meet the active farmer test before her death, the daughter will lose Agricultural Relief on the farm, despite being an active farmer herself.
Life Interest Trusts
Joan farmed 90 acres and left the land and farmhouse to her husband, Gary, for his lifetime, with the remainder going to their son, Robert. The question is whether Joan needed to meet the active farmer conditions before her death, or whether Gary, as the life tenant, must meet these conditions during his lifetime for Agricultural Relief to apply. If Gary does not actively farm or lease the land, Agricultural Relief may be lost, potentially resulting in a tax burden for the heirs.
A similar issue arises with discretionary trusts, especially when the beneficiaries are minors who cannot meet the active farmer test. Without clear guidance, there is uncertainty about how Agricultural Relief applies in these cases, leaving beneficiaries at risk of losing the relief and facing significant tax liabilities.
Conditional Gifts/Inheritances
Cash gifts used to purchase agricultural property within two years have traditionally qualified for Agricultural Relief. However, under the new rules, cash cannot meet the active farmer test. Therefore, beneficiaries may lose the relief even if they purchase farmland with the inheritance.
Death of a Child After Gift
In 2022, Robert received a gift of land and a farmhouse from his mother, Joan, and was meeting the active farmer conditions. After Robert tragically died in 2026 without a will, the land reverted to Joan under intestacy rules. Despite Joan farming the land for 30 years before gifting it to Robert, she cannot claim Agricultural Relief when it returns to her, as Robert had not farmed the land for the required six years prior to his death. This leaves Joan, with no other significant assets, facing a substantial tax liability.
The scenarios presented above show that the proposed changes to Agricultural Relief could have significant unintended consequences for farmers and their families. Many individuals who have long depended on the relief to transfer land to the next generation may now face substantial tax liabilities. This could lead to a decline in farm transfers, with some families opting for Business Relief as a less favourable but necessary alternative.
As the farming community awaits further clarification on these changes, it is vital for the government to reconsider the full impact of the proposed amendments. Agricultural Relief is an essential mechanism for sustaining family farms and ensuring that they continue to be passed down through generations. If these changes are implemented without adjustments, they could hinder this process and create uncertainty in the future of Irish agriculture.
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