Details of inheritance tax changes will be key

The announcement in the budget last week of the introduction of an active farmer test has caused significant concerns among farmers, tax advisers and those involved in succession planning.

While the new rule is being introduced to address concerns that agricultural relief is being used as a tool by the wealthy to reduce inheritance liabilities, it could have much wider implications for farmers if not implemented carefully.

Whether a farmer has a careful succession plan in place which involves incorporation of the enterprise, or a son or daughter has farmed the land for several years without a formal lease in place, there are seemingly endless examples of where the active farmer test conditions would not be met by the actual owner of the land who is passing it to the next generation.

The Irish Farmers Journal understands that the IFA met with officials from the Department of Finance in recent days and while it is still awaiting the exact wording of the legislation as it will appear in the finance act – due to be published on Thursday 10 October – the organisation is confident that the problems inherent in the blunt instrument as announced will be ironed out.

Hopeful

Similarly, Marty Murphy, head of tax at ifac, told the Irish Farmers Journal that he is “very hopeful that the necessary changes will be contained in the legislation”.

Whatever the details are in the legislation, it is clear that this will be the end of informal parent-child farm management practices, where the onus was only on the inheritor to prove they were an active farmer.

For farmers thinking about the next generation, good, independent tax advice will be essential to avoid being caught in a tax-trap that was never meant for them.