Agricultural Relief for the uninitiated is the main tax relief that allows farm land and certain other farming assets to effectively pass from one generation to the next without significant gift or inheritance tax.
The relief works by reducing the taxable value of a gift or inheritance by 90% where the recipient meets certain requirements. Figures from the Revenue Commissioners for 2019 show that 1,413 beneficiaries availed of Agricultural Relief at an estimated cost to the Exchequer of €159m.
However, this figure is likely to be significantly understated as some beneficiaries who availed of Agricultural Relief at that time did not file gift or inheritance tax returns where with the aid of Agricultural Relief the taxable value of their benefits was below their tax-free threshold.
In the intervening years it has now become mandatory to file a tax return where a beneficiary wishes to claim agricultural relief and moreover the value of land has increased significantly particularly in areas where there is strong demand for land.
Taking those two factors together it may well be the case that Agricultural Relief is worth multiple hundreds of millions of euros to farm successors per year and hopefully more up-to-date figures will be released either by the Tax Strategy Group or by the Revenue Commissioners directly which would aid a more informed debate.
The phenomenon of non-farming persons buying up land for tax purposes as a means of passing on wealth has become more than just an anecdote and many farmers will be aware of farms that have been bought for tax reasons.
This latter tax relief has now been extinguished to some degree since January 1, 2025, in the case of lands purchased, however the underlying issue of non-farming interests buying up land for tax purposes to allow for tax efficient transfer of wealth persists.
Presently, there is no limit on agricultural relief and taking an extreme example to highlight the issue a wealthy individual could gift €100m worth of land to their child at a tax cost of a little over €3.1m or around 3% tax cost compared to the “normal” headline gift and inheritance tax rates of 33%, with that super low rate of near 3% applying even where the successor leases out their farm where relevant conditions are met.
The 2025 Budget announced last October sought to restrict Agricultural Relief by insisting that the transferer must either have been a full-time or trained farmer or have leased the farm to such a farmer for the six years as a prerequisite to the successor being entitled to avail of agricultural relief.
But the legislation drafted whilst having good intent failed to recognise simple yet common issues prevalent on Irish farmers, such as land being owned by one spouse but worked by another, or where land was made available to a child not formalised via a lease, or where the individual who owned the land was no longer capable of making a lease (such as the case of land owners with mental capacity issues).
The upshot from the post-Budget analysis was that the proposed changes to the relief were to be reviewed, but here is where the issue is in danger of being only a skin deep review.
The tax relief system in Ireland, including the aforementioned agricultural relief, but also stamp duty relief and income tax reliefs have aligned over recent decades to effectively create substantially no disadvantages in owning land for the purposes of long-term leasing and that such land can be passed from one generation to another where the successor also continues to engage in leasing.
Some would argue that the land ownership system currently offers very few favours to those who derive their living from farming and who wish to grow their farm businesses ahead of those who choose to invest or remain invested in agricultural land as landlords.
To my mind, that bigger question of where we want land ownership to rest is not simply confined to Agricultural Relief.
Should the income tax exemption for leased land only apply for a certain limited period and not across multiple generations as is presently the case? Should the stamp duty rate for land purchases by investors or successors who lease out their land be at a higher rate than for farmers?
These are just some of the questions that will be left unanswered without a comprehensive review of Ireland’s land ownership strategic objectives.