PART 10 RELIEFS

Overview

This Part deals with the reliefs applying to gifts and inheritances of agricultural property and business property. It also contains other miscellaneous reliefs.

Chapter 1 sets out the relief available to gifts and inheritances of agricultural property. A deduction of 90% is given from the market value of the property in order to arrive at its “agricultural value”. In order to qualify for the relief, the donee or successor must be a farmer (as defined). The relief will be withdrawn if agricultural land is disposed of or compulsorily purchased within 6 years of the date of the gift or inheritance and is not replaced, within 1 year of the disposal or within 6 years of the compulsory purchase, by other agricultural property.

Chapter 2 sets out the relief available to gifts and inheritances of certain business property. The taxable value of such property is reduced by 90%. In order to qualify for the relief, the business concerned must not consist wholly or mainly of dealing in land, shares, securities, or currencies or of making or holding investments. The relief will extend to all the activities of the business (i.e. trading, professional etc.) other than dealing in land, shares, securities or currencies or making or holding investments. In the case of sole traders and partnerships, the relief will apply to the value of the net assets which are used in the course of a qualifying business activity. In the case of companies, the relief will apply to that proportion of the value of the shares or securities of the company which are derived from a qualifying business activity. Assets which are not used for the purposes of a qualifying business activity will not be entitled to the relief. Quoted shares or securities will not generally qualify for the relief.

The business property must have been owned by the disponer for a minimum period prior to the gift or inheritance and, where the business property consists of shares or securities in a company, the donee or successor must hold a minimum interest in the business after taking the gift or inheritance.

The relief may be withdrawn in whole or in part if, within 6 years after the gift or inheritance, the business ceases to be a qualifying business (other than in the case of a bona fide winding up) or if the relevant business property is sold, leased, redeemed or compulsorily acquired and not replaced within a year by other qualifying business property. The relief will be reduced (in the same proportion that the market value of the replacement property bears to the market value of the original property) where the original property has been replaced, directly or indirectly, by other property and the market value of the original property is greater than the market value of the property which replaced it.

Chapter 2A provides for a clawback of agricultural relief or business relief, as the case may be, which has been granted in respect of development land (as defined) where such property is sold in the period commencing 6 years after the date of the gift or inheritance and ending 10 years after that date. The relief will be clawed back in respect of the development value of the property.

Chapter 3 contains other miscellaneous reliefs, i.e. relief from double aggregation, credit for capital gains tax on the same event, allowance for prior tax on the same event and relief from double taxation.

CHAPTER 1

Agricultural relief

89 Provisions relating to agricultural property

Summary

This section grants relief in respect of agricultural property where such property is taken by a “farmer”, who is defined for the purposes of the section as an individual in respect of whom not less than 80% of his/her gross property in possession consists of agricultural property after taking the gift or inheritance. For the purpose of the 80% test, no deduction is made from the market value of property for any debts or encumbrances except for debts or encumbrances in respect of an off-farm house which is the beneficiary’s only or main residence.

Where the donee or successor qualifies as a “farmer”, a deduction of 90% is allowed from the market value of agricultural property in order to arrive at its “agricultural value”. Agricultural relief is granted to timber without the requirement that the donee or successor must satisfy the “farmer” test.

Where agricultural relief has been granted, the section provides that only the same proportion of the liabilities, costs and expenses that relate to the part of the agricultural property that has not been granted agricultural relief will be allowed for the purposes of calculating the taxable value of that property.

The agricultural value will cease to apply to land that is disposed of or compulsorily acquired within 6 years of the date of the gift or inheritance and is not replaced, within 1 year of the disposal or within 6 years of the compulsory acquisition, by other agricultural property. However, land that a spouse had transferred to his or her spouse will not qualify as replacement property for this purpose. Where the proceeds from a disposal or compulsory acquisition of all or part of the land are not fully expended in acquiring other agricultural property within the time limits referred to, relief will be clawed back in respect of the proceeds not re-invested in acquiring other agricultural property.

Details

(1) “agricultural property” means agricultural land, pasture and woodland located in a Member State of the EU 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 property) as are of a character appropriate to the property and farm machinery, livestock and bloodstock on such property and the EU Single Farm Payment Entitlement;

“agricultural value” means the market value of agricultural property reduced by 90% of that value;

“farmer”, in relation to a donee or successor, means an individual in respect of whom not less than 80% of the market value of the property to which the individual is beneficially entitled in possession is represented by the market value of property in a Member State of the EU which consists of agricultural property. However, for the purposes of the definition:

• no reduction is made from the market value of property for any debts and encumbrances except debts or encumbrances in respect of an off-farm house which is the beneficiary’s only or main residence. . A loan secured on such an off-farm main residence dwelling-house which is not used to purchase, repair or improve that dwelling-house will not be treated as a debt or an incumbrance and
• an individual will be deemed to be beneficially entitled in possession to:

an interest in expectancy, notwithstanding the definition of “entitled in possession” in section 2, and

property which is subject to a discretionary trust under a disposition made by the individual where the individual is also an object of the trust.

Finance Act 2014 provides for a further requirement under the definition of “farmer” to ensure that agricultural relief is more effectively targeted at individual’s who inherit or who are gifted agricultural property and who actively farm it themselves or who lease it on a long-term basis to active farmers.

To qualify for agricultural relief the beneficiary or lessee must spend not less than 50 per cent of his or her normal working time farming agricultural property (including the agricultural property comprised in the gift or inheritance) on a commercial basis and with a view to the realisation of profits from that agricultural property.

Agricultural relief will also apply to a beneficiary if that beneficiary is the holder of any of the qualifications set out in Schedule 2, 2A or 2B to the Stamp Duties Consolidation Act 1999 (in relation to young trained farmers) or who achieves such a qualification within a period of 4 years from the date of the gift or inheritance, and who, for a period of not less than six years, farms the agricultural property on a commercial basis and with a view to the realisation of profits from that agricultural property. The amendment is designed to ensure that beneficiaries who hold educational qualifications in agriculture and who are productive farmers but who are not in a position to spend not less than 50 per cent of their normal working time farming the agricultural property can also avail of the relief.

The purpose of the F.A. 2014 amendment is to ensure productive use of agricultural property. The amendment also provides for the claw-back of the relief if the additional conditions as regards use of the agricultural property are not satisfied for a period of not less than six years.

(2) The provisions of section 28 (dealing with the “taxable value” of all property other than “agricultural property”) apply to agricultural property, except that the “agricultural value” is substituted for the “market value”. For the provisions to apply:

• the gift or inheritance must comprise agricultural property (as defined) at the date of the gift or the date of the inheritance and at the valuation date, and
• the donee or successor must be a farmer (as defined) on the valuation date.

The “incumbrance-free” value will be arrived at on the same basis as in section 28. However, where any liability or consideration has to be deducted in arriving at the incumbrance-free value or the taxable value, only 10% of such value may be deducted.

(3) Where a donee or successor receives a gift or inheritance subject to the condition that it is to be invested in whole or in part in agricultural property, the gift or inheritance will qualify for agricultural relief as if it consisted of agricultural property:

• at the date of the gift or inheritance, and
• at the valuation date,

if the condition has been complied with within 2 years of the gift or inheritance.

(4)(a), (aa) The relief under this section will be withdrawn if, within 6 years after the date of the gift or the date of the inheritance the agricultural property (other than crops, trees or underwood) is disposed of or compulsorily acquired in the lifetime of the donee or successor and is not replaced, within a year of such disposal (or within 6 years in the case of a compulsory acquisition), by other agricultural property. Where all or part of the proceeds of the property in respect of which relief was granted are not fully expended in acquiring other agricultural property within the time limits referred to, relief will be clawed back in respect of the amount of the proceeds not re-invested.

The proceeds from a disposal include an amount equal to the market value of the consideration other than cash received for the disposal.

(4)(b) If an arrangement is made, in the course of administration, under which agricultural property is appropriated to a successor (e.g. where all the next-of-kin agree that one of them should take the land and the others take the cash), such an arrangement is deemed not to be a disposal or a compulsory acquisition for the purposes of subsection (4)(a).

(4A) Where the proceeds referred to in subparagraph (ii) of subsection (4)(a) are expended in acquiring agricultural property which has been transferred by the donee or successor to his or her spouse/civil partner, such property will not be treated as “other agricultural property” for the purposes of that subparagraph.

(5) A personal representative may appropriate a holding of agricultural property in satisfaction of a legacy under section 55 of the Succession Act 1965. Section 55 of the Succession Act 1965 deals with the powers of the personal representatives to appropriate any part of the estate of a deceased person in satisfaction of any share in the estate. If the agricultural property was part of the deceased person’s estate at the date of his/her death (i.e. the date of the inheritance), the appropriation will be retrospective to that date. This will enable the legatee to qualify under subsection (2) by treating that agricultural property as being comprised in his/her inheritance at the date of the inheritance and at the valuation date.

(6) Agricultural relief is afforded to trees and underwood comprised in a gift or inheritance taken by a donee or successor who does not meet the requirement of being a “farmer” within the meaning of the definition in subsection (1). The relief applies to growing trees and underwood only and not to the land on which they are growing.

(7) The relief applies to a transferee referred to in section 32(2).

Relevant Date: Finance Act 2015