Tánaiste and Minister for Finance, Simon Harris, has clarified the circumstances under which agricultural relief under the Capital Acquisitions Tax Consolidation Act (CATCA) 2003 will not be clawed back if property cannot be farmed due to incapacity.
Section 89 of CATCA 2003 provides for agricultural relief which takes the form of a 90% reduction in the taxable value of gifted or inherited agricultural property.
To qualify for the relief, the beneficiary must first qualify as a “farmer” as defined in the act.
Under CATCA 2023, failure to actively farm all (or part) of the agricultural land during a six-year qualifying period will result in a full (or partial) clawback of the relief.
Agricultural relief
The clarification by the Minister for Finance was in response to a parliamentary question by Fine Gael Deputy John Paul O’Shea on whether the Department of Finance will review the operation of the six year clawback rule in circumstances where an inheritor of agricultural property is unable, due to severe disability or long-term residential care needs, to farm the land or reinvest in agricultural property.
O’Shea also asked if the minister will consider introducing a specific legislative exemption or waiver to prevent the clawback of agricultural relief in such exceptional cases.
Minister Harris said: “It is Revenue’s understanding…that the query relates to the operation of Capital Acquisitions Tax (CAT) agricultural relief in circumstances where the beneficiary of a gift or inheritance of agricultural property has a severe disability or long-term residential care needs.
“Agricultural relief is provided for by section 89 of the Capital Acquisitions Tax Consolidation Act 2003.
“To qualify for the relief, a number of conditions must be met.
“These include the requirement that the beneficiary qualifies as an ‘active farmer’ for six years from the valuation date of the gift or inheritance.”
Leasing the land
Harris said that the active farmer requirement could be met by leasing land.
“In circumstances where a beneficiary is unable to farm agricultural land personally, they will be able to satisfy the active farmer requirement by leasing the land to someone who is in a position to meet these conditions,” he said.
“The legislation provides for agricultural relief to be clawed back if, within six years of the valuation date of the gift or inheritance, the agricultural property is sold and not replaced by other agricultural property, or if the agricultural property ceases to be actively farmed.”
Intergenerational transfer
Harris added that the intention is to encourage farming across generations.
“The policy intention for CAT Agricultural Relief is the allow for the intergenerational transfer of farmland for its continued active farming, and there are no exemptions for the clawback provisions,” he said.
“The Capital Acquisitions Tax Consolidation Act (CATCA) 2003 does contain a number of exemptions from CAT which may be relevant in the circumstances outlined.”
These circumstances, Harris said, include Section 84 CATCA 2003, which “provides an exemption from CAT for gifts and inheritances taken exclusively for the purpose of discharging qualifying expenses of an individual who is permanently incapacitated by reason of physical or mental infirmity.
“’Permanently incapacitated’, in this context means being unable to support oneself by earning an income from working.
“Qualifying expenses mean expenses relating to medical care including the cost of maintenance in connection with such medical care.”
Other exemption
Harris also cited Section 82(4) of CATCA 2003.
This, he said, “provides for an exemption from CAT for inheritances for support, maintenance and education, to a child of the disponer (i.e., the parent) of any age who, on the date of receipt, is permanently incapacitated by reason of physical or mental infirmity from maintaining himself or herself..
“In order for the exemption to apply, the beneficiary’s other parent must also be deceased at the date of the inheritance.
“The provision of such inheritance must be such as would have been part of the normal expenditure of the disponer, having regard to his or her financial circumstances immediately before the date of death.”