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Agri Relief and Leasing

sportsfan90

Hi all - a colleague of mine is going through a farm & farmhouse transfer from his parents name to his own to avoid a potential fair deal scheme down the line. The intention is to lease out the land.

As far as I know he doesn't have a Green Cert but intends on leasing it to a farmer that does for the minimum of 6 years.

While the land will be leased out, the farmhouse wont be - his parents intend to sign it over with the farm but will be living there for as long as they're around, I know they intend to include a lifetime Right Of Residence for the parents when signing it over.

My question is can the house then be included under the Agricultural Relief? I think there's a rule that at least 75% of the agricultural assets you get the Ag Relief on must be included on the lease to meet the conditions. I can't find this anywhere on the Revenue website, although I guess it makes sense that if you're getting relief on the house then that too would have to meet the conditions and also be leased out. Or would the Right of Residence affect this in any way?

It could be a massive problem for them if the house can't be included in the package with the land and qualify for AG Relief on it all - they did the sums and if the house can be included in the Agri Relief he would be on the right side of the 80% Asset Rule, but if it's not included then his own savings/assets will mean he likely wont qualify at all and will face a significant tax bill.

Can anyone here able to shed some light?

Thanks.

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Bass Reeves

https://www.boards.ie/discussion/comment/118525306#Comment_118525306

It shows how important it is to have the green cert as it open up.your options. However the farm is supposed to be small. His personnel inheritance allowance is 335k. You be able to value a small amount o midsized farm at or near this. The real advantage of agri relief is over valuing so if you sell it down the line you are reducing your CGT liability. Unless he is going to/ or has inherited substantial extra non agri property/ cash he will not have a substantial tax bill.

The way I see all these reliefs is that they are only any use to the larger agri operator. You could inherit 200 acres of land, farm house, sheds and machinery value them at 2.5- 3 million and have 600k in personnel assets and have no tax liability, if they lease it out for 4-5 years

But the lad that has a house that he bought and paid for himself, and a bit of savings put away to put children through college driving a decent car who inherits a small or mid sized that he intends to farm himself ends up with a capital tax liability.

That is why I am an agnostic on these low interest bank loans, agri relief and leading relief. They are of limited value to the average guy.

trg

https://www.boards.ie/discussion/comment/118525444#Comment_118525444

He'd be farming it though. Guide is 20 hours per week which admittedly might be a challenge

wrangler

https://www.boards.ie/discussion/comment/118525306#Comment_118525306

If he wanted to farm it himself without a green cert he couldn't avail of agriculture relief

trg

https://www.boards.ie/discussion/comment/118523687#Comment_118523687

Agreed but the question was around how to mitigate tax. Sucking it up is a separate issue.

OP would the incumbent consider a share farming arrangement of sorts? He provides the land and grass to a neighbouring farmer in return for payment. Needless to say it wouldn't be a lease so land lease exemption wouldn't apply.

Bass Reeves

https://www.boards.ie/discussion/comment/118523665#Comment_118523665

Yes but a house in a farm yard has limited value. The liability will be down the road when you are better set up. In reality you are where you are so you have to live with that. If you end up with a tax bill of 50-60k or even more after inheriting maybe 3/4 of a million in assets and you cannot work it out its too bad.

trg

https://www.boards.ie/discussion/comment/118523537#Comment_118523537

Depends on the type of right of residence, exclusive or non exclusive. No liability for exclusive until the right expires but no guarantee of Agri Relief then either.

Bass Reeves

AFAIK if the house has a right of residence, when it is transferred there is no liability attached to it until you actually have got full possession.

sportsfan90

OP here again.

The lease in question wouldn’t be to a family member so that wouldn’t be the issue in this case.

893bet

https://www.boards.ie/discussion/comment/118521354#Comment_118521354

Can’t do tax free lease from parent to child or from sibling to sibling.

trg

https://www.boards.ie/discussion/comment/118521354#Comment_118521354

Agricultural Relief would still be allowed.

Grueller

https://www.boards.ie/discussion/comment/118522491#Comment_118522491

ODW I would say. I have heard that story from several about them.

mickdw

Get a price upfront.

wrangler

https://www.boards.ie/discussion/comment/118521354#Comment_118521354

You cannot avail of tax free allowance if you're related to the tenant

Easten

I could be wrong as its been a while since I read this but I think there not a clause in the Agricultural inheritance relief whereby if you have been leasing the land that you inherit for more than 5 years then this excludes you from getting agricultural relief on it. I think it has to do with stopping retiring farmers leasing to their son/daughters in order to get Tax free rent from the land while the leaser use it as an expense.

mickdw

I'd imagine he is best to farm it himself for the 6 year term. He would have to satisfy 50 percent or more of working week farming if he doesn't have a green cert I believe or else get a green cert.

trg

https://www.boards.ie/discussion/comment/118518579#Comment_118518579

Only if they've been vested. Not if they haven't been drawn down

sportsfan90

Does anyone know if the value of someone’s pension gets included as an asset for the 80% rule?

sportsfan90

Thanks for all the responses so far.

Yes as @mickdw suggested the solution I had in mind was to transfer the land first under the Agri Relief and to then transfer the house a few months afterwards (or whatever minimum time limit there might be).

The only problem with that is it's not a massive farm so they couldn't claim the house is less than 25% of the total value. And he has decent enough savings himself, so without the house being included I'd think he'd struggle to keep within the 80% asset rule.

So not only would he bit hit with a tax bill now, the same would happen again a few months later when transferring the house as he'd already have maxxed (likely exceeded) his tax-free gift threshold limits from his parents by transferring the farm if it hasn't qualified for Agri Relief.

It would be so much easier if they could find a way to include the house in the package and be hit with no tax bills rather than 2 big ones, the last thing they'd want to do is sell off a portion of the land just to pay the tax.

mickdw

I went through this process and only found this clause myself when going through the various revenue docs dispute having solicitors and accountant advice.

Luckily in my case the house was less than 25 percent of the overall value and so we were able to satisfy the requirement to lease at least 75 percent of the transferred asset.

It wasn't needed in my case but I believe the right to reside can be used to calculate a reduced value for the dwelling in terms of what it is worth to receiving person at time of inheritance. This may help.

Alternatively, surely he can inherit the land now and claim farm relief and later inherit the house at full value and possibly be covered under parents exemption limit.

I don't know if there is time limits that must be observed between such transactions but all worth looking into.

It's possible of course that the 80 percent rule cannot be satisfied without the house included.

Grueller

https://www.boards.ie/discussion/comment/118514555#Comment_118514555

You are probably correct. Losing the land changes the dynamics of the situation. I didn't have that consideration myself as I am farming the land myself.

trg

You're right about the 75% rule. Issue is that if they're together the qualifying conditions aren't met for the land either. Its not that they'd just lose it on the house.

I'd suggest a meeting with a specialist farm tax accountant like ifac or fdc. They'll charge but be money well spent.

Very intricate stuff there hence I'd go tax specialist before solicitor

sportsfan90

https://www.boards.ie/discussion/comment/118514470#Comment_118514470

Yes but the farm is to be leased out whereas the farmhouse won’t be, so they can hardly get Agri Relief on the house too if that part of the package doesn’t meet the qualifying conditions of being leased to a qualified farmer?

Apologies if I’m misunderstanding your response?

Grueller

https://www.boards.ie/discussion/comment/118514436#Comment_118514436

If the farmhouse is in the yard and is integral to it, it qualifies. A lifetime right of residence doesn't affect this I was informed by my solicitor when we went through the process a few years ago.

sportsfan90

Yes a solicitor was my advice as their first port of call.

By the sounds of it they presumed the farmhouse could be included in the Agri Relief but allowing his parents to continue to living there now looks like that may not be possible.

Unfortunately this now looks like they won’t qualify and will be facing a big tax bill.

Hard Knocks

https://www.boards.ie/discussion/2058229137/agri-relief-and-leasing

Hi, tell your friend to get in contact with a solicitor, 2 sets will be needed during the transaction, his and his parents. A valuation will be needed from an auctioneer on the list and the solicitor will advise on the relief and conditions

Good luck to them