The Finance Bill 2024 has made a number of changes to tax reliefs which will have an impact on your client’s farm succession planning arrangements. In particular, the following potentially valuable reliefs have been amended:
- Retirement Relief pursuant to Section 599 TCA 1997 (which provides relief from Capital Gains Tax (CGT) for a parent)
- Agricultural Relief pursuant to Section 89 CATCA 2003 (which provides relief from Capital Acquisitions Tax (CAT) for a beneficiary)
- Young Trained Farmer Relief pursuant to Section 81AA SDCA 1999 (which provides relief from stamp duty for young trained farmers)
These tax reliefs are often targeted as part of a combined succession planning approach in respect to family farms, aiming to maximise the benefits of the available tax reliefs for both the disposing parent and their children who are taking on the family farm.
We have summarised the key aspects of the legislative changes for you and your clients to note when they are considering a succession plan.
Please note this analysis is based on the draft Finance Bill which is subject to change.
Retirement Relief – Finance Bill 2024 changes
There is an amendment to the clawback rules where a parent has transferred a family business (which includes a family farming business) to a child. The Bill confirms that a 12-year CGT clawback period will apply on disposals of businesses from the 1st January 2025, where the market value exceeds €10 million and the parent is aged 55 to 69 at the time of disposal to the child.
It remains the case that the clawback is assessed on the child if they do not continue to hold the business assets for 12 years. The timing of elections for the deferral and/or the abatement is very important.
While this change offers some benefit potentially allowing family businesses valued at over €10 million to transfer to the next generation tax-free, the increased clawback period from 6 years to 12 years is a considerable change and would require significant management for the recipient. That said, it is a welcome change as it means the transfer does not cause a tax cost at the date of the gift or inheritance.
Agricultural Relief – Finance Bill 2024 changes
The key change is that the active farmer test has been modified, and the legislation now requires that the individual disposing of the agricultural property must meet the 6-year active farmer test as already defined for the beneficiary (in addition to the beneficiary). There will be a transitional period in respect of this change. The change to the active farmer test now allows the test to be satisfied throughout the 6 year period, if part of the agricultural property is farmed by the beneficiary, who is an active farmer, and the remaining part of the agricultural property is leased to another active farmer. Prior to this change, Revenue’s view has been that the beneficiary cannot farm part of the land and lease part of it at the same time during this 6 year period.
The newly inserted Section 89A CATCA 2003, which is effective from 1 January 2025 provides that for the 6-year period prior to the date of the gift or inheritance, the agricultural property must have been owned by the disponer who satisfies the active farmer requirements. For example, they must either:
- Be a qualified farmer and farm on a commercial basis with a view to making a profit
- Farm the land for at least 50% of his/her working time on a commercial basis with a view to making a profit
- Lease it to an active farmer as defined in 1 or 2
There are specific provisions dealing with the death of spouses which states the ownership period/active farmer of the deceased spouse will pass to the surviving spouse and provisions to deal with the disposal and reacquisition of agricultural property within this 6 year period prior to the date of the disposal and provisions relating to solar farms.
As such, while the changes provide more flexibility regarding the use of the agricultural land by the beneficiary, the requirements for the donor to also satisfy the active farmer test for the agricultural property is a more onerous condition. There is a transitional period where the 6 year period is deemed to be met for the disponer where the active farmer test is met from 1 January 2025 to 31 December 2030 as long as it is applied from that date to the date of the gift/inheritance during that period. It is important that you and your clients review their position and assess if action needs to be taken before the effective date of these changes (1 January 2025) as it is likely this change will cause issues in certain circumstances for truly active farmers. Action should be taken now where this is the case.
With effect from 1 January 2025 based on the current wording, it appears it will no longer be possible to provide a cash gift on condition it is invested in Agricultural Property (as defined) within two years. If this is something that was being considered, it might be worthwhile to consider doing this prior to 1 January 2025.
Young Trained Farmer Stamp Duty Relief – Finance Bill 2024 changes
The Finance Bill provides that the relief will also be available where the working time condition is satisfied through a company. It is important to note that a Company itself cannot claim the relief. The young trained farmer must not spend less than 50% of his/her working time farming the land as an employee, hold at least 20% of the ordinary share capital (as defined), be a director and have the ability to participate in financial and operation decisions of the company.
As such, this is a welcome change as it broadens the scope of the relief. Up to now, Revenue has allowed by concession, this relief, where the beneficiary was a working director and held more than 50% of the share capital of the Company.
The above changes, in addition to the unchanged provisions of the reliefs, highlight again the importance of early planning when it comes to farm succession plans. With sufficient time and proper planning,it is possible to structure a succession plan for the next generation in a tax-efficient manner that benefits both parents and children.
The OmniPro Tax & Legal team is highly proficient in navigating the complexities of tax issues related to succession planning, particularly for family farms. We understand the intricacies involved and are dedicated to helping you and your clients make informed decisions that maximise available reliefs and minimise tax liabilities. If you would like to discuss these changes in more detail or explore tailored solutions for your clients, please do not hesitate to book a call with our team.
