Those inheriting land can avoid paying full whack on the capital value of the farm as long as they are farmers themselves. They can do this by filling out an IT38 (Inheritance Tax/Gift Tax Return form) form on www.revenue.ie.
Agricultural Relief means that inheritance tax, or capital gains, is paid on 10% of the value of the property. So, if a property is worth €500,000, the tax is calculated on a figure of €50,000. Similarly, if a consideration fee is paid by the person inheriting, say €10,000, 10% of this fee is also taxed, being in this case €1,000.
If you are inheriting land and farming assets you can avail of agricultural relief, so long as you can prove you are a farmer, earning money from farming. You must also demonstrate that 80% of your total assets, after inheritance, consist of agricultural property. Agricultural property is defined as land, pasture, woodland, crops, “houses and other farm buildings appropriate to the property” and “livestock, bloodstock and farm machinery.” The 80% figure is calculated on the total value of your fixed assets, with the value of your inheritance included. So if you already own a house this must be worth less than 20% of the farm including all its stock, machinery, sheds and additional farmhouses.
For example, if you inherit a farm worth €500,000 and you already own a house worth €80,000, a car worth €5,000 and you have €5,000 put away, you might squeeze in for agricultural relief as your non-agricultural net-worth is €100,000, or 20%. In any case, if you are farming, your car is likely to be a classified as a farming vehicle which would ease the pressure a bit.
The inherited property “must be farmed on a commercial basis” with a view to making money. Agricultural relief is also available against the cost of the transfer, so if you paid €5,000 in legal fees, you will be taxed on €500.
There are some clawbacks with Agricultural Relief, notably if you sell it on within six years. If you develop the property for non-farming purposes, like building houses on a portion, before ten years are up you must pay back the relief against the development value of the land on the date of inheritance. If you inherited the property before 2012 you must have been resident in Ireland for three years after the inheritance.
As with all big transactions, it is imperative to get good legal and accountancy advice to avoid pitfalls. Besides all of that there are many personal issues to consider when inheriting, which well-known farmer and author Lorna Sixsmith discusses here. Revenue's guide is also available here. Happy Inheritance!