According to our Head of Tax, Marty Murphy, these changes are likely to negatively impact many farming families and arrangements that rely on agricultural relief for the seamless transfer of farmland from one generation to the next. "The provisions, as they stand, represent a significant change and require immediate and urgent action before 31 December.”
The traditional agricultural relief familiar to every farmer will end on 31 December 2024. From 1 January 2025, a new agricultural relief will apply. The main changes are:
Active farm test now applies to the donor, the individual gifting the land, who must have satisfied the conditions immediately prior to the gift or inheritance.
Conditional gifts, where cash could be gifted provided land was purchased within two years, are removed.
The 75% substantial test for leasing land has been removed. A combination of the active farmer test can be used to qualify. However, the guidance on the legislation specifically states, "used for the purposes of farming by the disponer or a person to whom the property was leased." This may have knock-on effects for farmhouses that are unlikely to be leased or farmed when the land is leased out.
A transitional period from now until 31 December applies, making any lease entered now automatically qualify as having existed for six years. These leases need to be prioritised where the individual who owns the land does not farm it.
For the active farm test for the donor, the relevant time period may include time farmed by a deceased spouse.
The new rules which were aimed at preventing potential misuse of agricultural property relief, risk creating unintended financial burdens for genuine farmers. The following 15 real-life scenarios prepare by the ifac tax team highlight how these amendments could dramatically alter the landscape of farm inheritance and impose significant tax liabilities on farming families.
No Formal Lease or Farming Activity
John fell ill and had to move into a nursing home. His son took over the farm. However, there was no formal lease in place, and his son used farm profits to cover nursing home costs. As John was neither farming nor leasing the land formally, the active farmer test is not satisfied. When the farm is passed to the son, he will be denied agricultural relief, leaving him with a significant tax liability despite taking over farm management.
Farmhouse Issue When Leasing
Where agricultural lands are leased under the new provisions there is no mechanism to allow the farmhouse to satisfy the active farmer conditions
Mary owned and farmed 200 acres of land for many years before transferring 170 acres to her daughter, who continued to farm the entire property. Mary kept the farmhouse and 30 acres, which she leased to her daughter for income in her retirement. When Mary passes away, her daughter inherits the farmhouse and 30 acres. However, under the new provisions, the farmhouse does not meet the active farmer test because it wasn’t actively farmed or leased as agricultural property. Farmhouses are particularly challenging under the new rules, as farming typically occurs from the farmhouse, not on it. This disconnect between practical farming and the legislation means Mary’s daughter will face a large tax bill, despite continuing to farm the entire property.
‘Appropriate Part’ / Rights of Residence
Mary owned and farmed 200 acres until she transferred it to her daughter, subject to a right of residence in the farmhouse and an income of €20,000 per year. Upon Mary’s death, the rights of residence and income are removed, and the daughter inherits the property in full. However, because neither the farmhouse nor the land had been actively farmed or leased by Mary in her later years, the daughter will be unable to claim agricultural property relief on the inheritance that arises on the cessation of the right of residence and income support.
This penalises families who, in securing financial support for the older generation, inadvertently disqualify themselves from relief. It also discourages intergenerational transfers when security provisions cannot be put in place for elderly farmers without significant tax consequences.
Interaction with Retirement Relief and Deferred Transfers
Michael farmed his land until 2003, then leased it to his son for 10 years. When the lease expired in 2013, no formal lease was renewed and no rent was paid, although the son covered some of Michael’s expenses. Now, Michael wants to transfer the land but finds he no longer qualifies for the active farmer test, as he hasn’t farmed or leased the land in the last six years. Instead of transferring the land immediately, Michael and his son form a farm partnership to satisfy the active farmer test over the next six years, or alternatively, to qualify for Business Property Relief. However, since the land will have been let for more than 25 years, Retirement Relief will no longer be available. This forces Michael to delay the transfer indefinitely, or until he has farmed for another 10 years to regain eligibility for Retirement Relief, complicating the family’s succession plans.
School Principal
Frank, a 55-year-old school principal, owns 50 acres of land worth €500,000. While he stocks the land with sheep and sells silage, he doesn’t farm more than 20 hours a week and lacks a green cert. Frank is single with no children and leaves the land to his full-time farmer brother in his will. When Frank dies unexpectedly, his brother discovers that he cannot claim relief on the land, despite being a full-time farmer himself. The lack of relief results in a tax liability of €151,800, showing how the new rules can penalise even close family members in active farming due to the strict active farmer test.
Farmland and Potatoes
Marty owns 500 acres of tillage land, but a potato farmer leases different plots of Marty’s land on rotation, taking 50 acres some years and 70 acres in others. Over the six years before Marty’s death, the potato farmer has used various fields, totalling 300 acres. Marty, however, did not lease or farm these fields himself. When Marty passes away, his daughter inherits the 500-acre farm. Unfortunately, since Marty did not meet the active farmer test on the 300 acres used by the potato farmer, his daughter will be unable to claim APR on this portion of the land. This leaves her with a significant tax burden on the majority of the inheritance, despite her father’s extensive farming activity.
Successive Benefits – Husband and Wife
Mary owns 100 acres, and her husband John owns and farms another 70 acres in partnership with their daughter. John and his daughter farm the full 170 acres. When John passes away, he leaves his 70 acres to Mary in his will. Mary then leases the entire 170 acres to their daughter. When Mary dies within six years of John, the daughter can claim Agricultural Relief on the 70 acres inherited from John, but not on the 100 acres originally owned by Mary.
If the order of death had been reversed, with Mary passing first and John inheriting her 100 acres, followed by John’s death within six years, the same issue would arise—the daughter still wouldn’t be able to claim relief on the 100 acres, highlighting the rigidity of the rules around successive benefits.
Scenario 8 – Bachelor Farmers
Mick, Pat, Billy, and Frank are brothers who each farm their own land. Mick, Pat and Billy are all bachelors, Frank, the only married brother, has a son, James, who holds a green cert, helps his uncles farm and plans to farm. Mick owns 120 acres, Pat 45 acres, Billy 20 acres, and Frank 30 acres, which he has leased to Pat for 40 years. Frank has a will, but his brothers do not. The lands have been in the family for over 200 years.
Mick dies intestate, and Pat, Billy, and Frank inherit equal shares of his 120 acres, each avail of relief on their 1/3rd interest. Two years later, Pat and Billy die in close succession (Pat first). Frank and Billy inherit 50% of Pat’s 45 acres, but only the 45 acres qualifies for relief, as neither of them can claim relief on the one-third share of Mick’s 120 acres they inherited from Pat. When Billy dies, Frank inherits Billy’s 20 acres and can claim relief on that, but not on the interests Billy inherited from Mick or Pat.
By the time Frank dies, James inherits all 215 acres in total. Despite his green cert and farming background, James cannot claim relief on much of the inheritance due to the complex multiple layers of ownership and inheritance, likely forcing him to sell the family farm to cover the significant CAT liabilities.
Deed of Family Arrangement
In a variation of the bachelor brothers' scenario, however Frank predeceases Mick and
when Mick dies, his two brothers and nephew James agree to transfer Mick’s land entirely to James. However, because the brothers didn’t actively farm their portions of the land, James cannot claim property relief on the land, leaving him with a hefty tax burden despite the family’s intentions.
Discretionary Trusts for Minor Children
John, a farmer with three children, leaves his estate in his Will under a discretionary trust for his children until the youngest turns 21. John and his brother farm the land in partnership, and after John and his spouse die in a car accident, the brother (as trustee) continues farming the land, using profits from the farm to care for the children.
However, when the trust terminates, the children will not be able to claim Agricultural Relief. Although the new provisions allow for a "look-through" for the active farmer test in discretionary trusts, the inheritance date is when the property leaves the trust, not when John farmed it. Since John has been deceased for several years by then, the children cannot meet the active farmer test, highlighting the need to amend the existing wording within the ‘’look-through’’ provisions.
Life Interest Trusts
Provisions under Section 32(2) and future interests now not functional to allow relief.
Stephen leaves his farm to his wife Joan for her lifetime, with the remainder passing to their son, Sean. After Sean dies before Joan, his two children inherit the land when Joan passes away. This creates a double inheritance situation: first, they are taxed on the land Sean would have inherited from Stephen, and then again on the land they inherit from Sean himself.
While the children can claim Agricultural Relief on the portion inherited from Stephen (as he farmed the land), they cannot claim relief on the inheritance from Sean, who never actually took possession of the property. This leads to a significant tax liability on the same land, as Sean never actively farmed it.
Conditional Gifts/Inheritances
Cash gifts or inheritances intended for investing in agricultural property can qualify for Agricultural Relief, but only if the land is purchased within two years.
Geoff, a successful farmer with 150 acres, has saved €1 million to help his second son buy land, while leaving his own farm to his first son. When 120 acres comes up for sale at €1.8 million, Ger gives his second son €1 million, with the rest financed through a loan. Although the son qualifies for stamp duty relief as a Young Trained Farmer, without conditional gifts qualifying for Agricultural Relief, he now faces a €200,000 CAT liability. This increases the loan amount needed, but the bank refuses the higher loan, jeopardising the purchase and highlighting the importance of conditional gifts in farm succession planning.
Registered Succession Farm Partnership
The active farmer tests depend on the land being leased to an individual. An individual does not include a partnership.
John and Joe, a father and son, farm together in a registered succession farm partnership. In 2023, they plan for John to transfer the land to Joe in 2027. However, under the new rules, leasing land to the partnership disqualifies John from meeting the active farmer test. Without Revenue’s extra-statutory concession allowing partnerships to qualify, Joe will be unable to claim APR when the transfer takes place.
Limited Companies
John incorporated his successful farming business in 2019 after inheriting the land in 2015. Previously, by concession Revenue stated that the active farmer test could be satisfied where lands are leased to a company controlled by a person who actively farmed the land. This was an extra concession from Revenue.
Revenue will publish their guidelines for changes to agricultural property relief. Legislators account for farming through companies in sections 81AA and 81D SDCA 1999, but exclude it from the active farmer test. As a result, the concession for agricultural relief no longer applies when land is leased to a company.
When John dies, his daughter cannot claim agricultural property relief on the land, even though it was actively farmed by John’s company. This change creates a major tax burden for families who farm through limited companies.
"It would be preferable if the active farmer conditions were structured in a way that did not automatically disqualify those farming through a company or partnership. A helpful change would be to replace the term ‘individual’ in the active farmer conditions with ‘person,’ and to replace ‘disponer’ with ‘the disponer, a partnership of which the disponer is a member, or a company of which the disponer is a shareholder.’ This adjustment would ensure that farmers operating within different legal structures can still meet the necessary criteria."
Inactive Active Farmer
John leases his farm to his neighbour Michael, who farms extensively alongside his job as a schoolteacher. Initially, Michael meets the active farmer test, farming over 20 hours a week. They agree to a 10-year lease. In year 4, Michael is injured and reduces his herd but continues farming on a smaller scale due to his passion and entitlements.
In year 8, John passes away, and his son inherits the farm, claiming agricultural relief. Revenue audits the claim and finds Michael was not actively farming in the last 4 years. The son’s relief claim is denied, and he faces CAT, interest, and penalties on the inheritance.
The Finance Bill 2025 has introduced significant changes that will greatly impact farming families. Without further concessions from Revenue, especially regarding farmhouses, partnerships, and company-owned farms, many families will face unforeseen tax liabilities, which could force the sale of farmland that has been in families for generations.
