Question: I recently lost my uncle. His death was quite sudden and came as a shock to the family. In his will, he left me his farm. I wasn’t really expecting this as he hadn’t discussed it with me before he passed. He obviously didn’t think it would happen so soon, and unfortunately, we hadn’t planned for this inheritance. The farm is valued at €1.2m, and my family would very much like for me to keep it. In theory, I would like to keep it, too. However, I’m concerned because I don’t seem to qualify for Agricultural Relief. Are there any ways for me to reduce my tax bill?
Answer: This is an issue which affects a lot of farm families. If there had been some discussion, you could have organised your affairs to ensure that you could avail of Agricultural Relief and perhaps Favourite Nephew/Niece Relief. That said, all is not lost and there may be legal mechanisms to enable you to avail of the tax reliefs through Disclaimers and Deeds of Family Arrangement.
Deed of Disclaimers
A beneficiary who does not want to accept an inheritance can disclaim it so that the benefit passes on to the next beneficiary in line. The benefit of disclaiming some of what you got under the will is that you might be able to pass the Farmer Test to qualify for Agricultural Relief.
Alternatively, by disclaiming, it might pass the farm on to a family member who might be in a position to qualify for Agricultural Relief. As a disclaimer is the release of a right before it comes into possession, the timing is important, and a beneficiary cannot disclaim after accepting a benefit.
If a beneficiary is given more than one benefit under a will, they are free to disclaim all or some of the benefits. However, if they take a single benefit, they cannot disclaim part of it unless they have power to partially disclaim under the terms of the will. By studying the wording of the will, you and your legal/tax advisor should be able to determine what is possible.
A disclaimer can be withdrawn unless consideration has been paid for it or some person has altered their position in reliance on the disclaimer. It is important to establish who will become entitled to the benefit after it is disclaimed; and whether this is the effect the intended beneficiary wants to achieve. An interest forming part of the residue will pass on intestacy (which means a person dies without leaving a valid will), if disclaimed.
Intestate disclaimers can be quite complex, in terms of redirecting the assets. A child may decide to disclaim, assuming that the disclaimed intestate share will pass to their own children. However, in this situation, under S.72A, your uncle will be deemed to have died without children so the benefit will pass to the next of kin (generally his brothers and sisters).
There are no tax implications for the original beneficiary on a “pure disclaimer”, i.e. one where the beneficiary simply gives up the benefit. The receiving beneficiary (the person who takes the disclaimed benefit) is treated for tax purposes as receiving it from the deceased.
A disclaimer cannot be made in favour of a particular person. If the “disclaimer” directs that the property is to pass to a particular party, it is not a pure disclaimer and the transaction is effectively a gift from the person disclaiming, with the usual stamp duty and gift tax implications being applied.
It is possible for a deed of disclaimer to be signed on the basis that the person disclaiming will receive a payment from the estate instead of an asset. If the person disclaiming receives money or money’s worth for a disclaimer, they are taxed as if they received an inheritance of the amount paid to them from the estate, as a benefit from the deceased.
For example, Patrick dies and leaves his farm, valued at €1.2m to his son Robert and the residue of his estate to his daughter Sheila. Robert, who has no interest in farming, disclaims the bequest of the farm to him in consideration of a payment to him of €300,000 from the estate.
Robert is treated as taking an inheritance of €300,000 from his father. Sheila is treated as taking an inheritance from her father of the farm and the residue of the estate, less the €300,000 passing to Robert.
Deed of Family Arrangement
If a disclaimer does not give the desired outcome, another option would be to enter into a Deed of Family Arrangement. This would apply to a situation where the beneficiaries in the will or the parties entitled on intestacy decide among themselves how the property is to be divided up. It is an agreement which is made between beneficiaries to re-distribute benefits in accordance with their wishes, out of line with the will or rules of intestacy. To have a Deed of Family Arrangement, all interested parties would have to come to an agreement.
The benefit of this deed is that you could agree that the agricultural assets are taken by one beneficiary, which could qualify for Agricultural Relief while non-agricultural assets could be taken by other beneficiaries. There are tax implications to Deeds of Family Arrangements but these are outside the scope of this article.
In summary, there are legal mechanisms to help reduce tax liabilities but it may involve taking less than what you are originally entitled to under the will. Weigh up all options.
Disclaimer: The information in this article is intended as a general guide only. While every care is taken to ensure accuracy of information contained in this article, Aisling Meehan, Agriculture Solicitors does not accept responsibility for errors or omissions howsoever arising. Email aisling@agrisolicitors.ie
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