Question: My mother farmed 200ac for years before transferring 170ac to me. She kept the farmhouse and she leased her 30ac to me as a source of income during her retirement. She has been in a nursing home for three years under the Fair Deal scheme, and I will inherit her farmhouse and land when she passes.
I got tax advice during the transfer process, but with the proposed changes to the active farmer test, how will it affect my inheritance? Also, how does the Fair Deal scheme work when calculating the tax and contributions on the farmhouse and the land?
As the Group A CAT threshold increased from €335,000 to €400,000, my mother gifted me €68,000 in cash to utilise the €65,000 increase and €3,000 small gift exemption; my Group A threshold has been utilised in full.
Answer: The good news for you is that the proposed changes in the budget have been postponed. Let’s break down the tax on your inheritance and how the Fair Deal scheme impacts both the farmhouse and the land.
1. The impact of the Fair Deal scheme: The Fair Deal scheme helps cover nursing home costs by taking contributions from the assets of the person in care. In your mother’s case, the farmhouse and 30 acres are included in the calculation.
Under the scheme, contributions from the value of the farmhouse and land are capped at 7.5% per year for up to three years. This means a maximum of 22.5% of the value of each asset goes towards your mother’s care. This cap helps protect family farms. It’s also the limit, not the target. The key Fair Deal contribution breakdown is:
- Farmhouse estimated valued at €300,000 x 22.5% = €67,500
- 30ac of land estimated valued at €450,000 x 22.5% = €101,250
So, in total, €168,750 will be taken from the value of the farmhouse and land under the Fair Deal scheme. These contributions reduce the taxable inheritance value when calculating Capital Acquisitions Tax (CAT).
2. Agricultural relief and the active farmer test budget changes: Agricultural relief is a key tax relief that reduces the taxable value of agricultural land by 90%, meaning you only pay CAT on 10% of the land’s value.
To qualify for agricultural relief, you must pass the active farmer test, which ensures the land is being actively farmed for at least six years after inheritance.
Since you have a green cert and have been actively farming, you already meet the criteria.
As long as you continue farming for the next six years, you have met the conditions.
3. Capital Acquisitions Tax (CAT) calculation: After applying the Fair Deal deductions, CAT is charged on the remaining value of the assets. The rate for CAT is 33%.
Since the farmhouse is eligible for agricultural relief, CAT will be calculated on the value after the Fair Deal deduction:
Taxable value of farmhouse: 232,500 (€300,000 - €67,500)Apply agricultural relief: €23,250 (€232,500×10%)CAT on farmhouse: €7,673 (€23,250×33%)The 30ac are also eligible for agricultural relief, meaning only 10% of the value is taxable. But first, the Fair Deal deduction is applied:
Taxable value of land (before relief): €348,750 (€450,000-€101,250)Apply agricultural relief (90% off): €34,875 (€348,750×10%)CAT on land: €11,509Fair Deal contributions: The Fair Deal scheme takes a maximum of 22.5% of the value of the farmhouse and land, reducing the taxable value for CAT purposes. That’s a cash cost to you of €168,750 before you can take ownership of your mother’s house and farm.
Active farmer test: As you’re actively farming and have a green cert, you also qualify for agricultural relief on the land. This reduces your CAT liability to €7,673 on the 30ac.
Farmhouse: Again, you meet the crtieria to qualify for agricultural relief on the farmhouse. You’ll be taxed on the value of the farmhouse after the Fair Deal deduction, leaving you with a CAT bill of €11,509. In total, based on the above estimates you’ll owe €187,932 between CAT and the Fair Deal scheme on the inheritance of the farmhouse and the 30ac.
In the table below, we break this down further to show how the Fair Deal contribution will total €168,750 from the value of the farmhouse and land.
Marty Murphy is head of tax at ifac, which is the professional services firm for farming, food and agribusinesses.
Question: My mother farmed 200ac for years before transferring 170ac to me. She kept the farmhouse and she leased her 30ac to me as a source of income during her retirement. She has been in a nursing home for three years under the Fair Deal scheme, and I will inherit her farmhouse and land when she passes.
I got tax advice during the transfer process, but with the proposed changes to the active farmer test, how will it affect my inheritance? Also, how does the Fair Deal scheme work when calculating the tax and contributions on the farmhouse and the land?
As the Group A CAT threshold increased from €335,000 to €400,000, my mother gifted me €68,000 in cash to utilise the €65,000 increase and €3,000 small gift exemption; my Group A threshold has been utilised in full.
Answer: The good news for you is that the proposed changes in the budget have been postponed. Let’s break down the tax on your inheritance and how the Fair Deal scheme impacts both the farmhouse and the land.
1. The impact of the Fair Deal scheme: The Fair Deal scheme helps cover nursing home costs by taking contributions from the assets of the person in care. In your mother’s case, the farmhouse and 30 acres are included in the calculation.
Under the scheme, contributions from the value of the farmhouse and land are capped at 7.5% per year for up to three years. This means a maximum of 22.5% of the value of each asset goes towards your mother’s care. This cap helps protect family farms. It’s also the limit, not the target. The key Fair Deal contribution breakdown is:
- Farmhouse estimated valued at €300,000 x 22.5% = €67,500
- 30ac of land estimated valued at €450,000 x 22.5% = €101,250
So, in total, €168,750 will be taken from the value of the farmhouse and land under the Fair Deal scheme. These contributions reduce the taxable inheritance value when calculating Capital Acquisitions Tax (CAT).
2. Agricultural relief and the active farmer test budget changes: Agricultural relief is a key tax relief that reduces the taxable value of agricultural land by 90%, meaning you only pay CAT on 10% of the land’s value.
To qualify for agricultural relief, you must pass the active farmer test, which ensures the land is being actively farmed for at least six years after inheritance.
Since you have a green cert and have been actively farming, you already meet the criteria.
As long as you continue farming for the next six years, you have met the conditions.
3. Capital Acquisitions Tax (CAT) calculation: After applying the Fair Deal deductions, CAT is charged on the remaining value of the assets. The rate for CAT is 33%.
Since the farmhouse is eligible for agricultural relief, CAT will be calculated on the value after the Fair Deal deduction:
Taxable value of farmhouse: 232,500 (€300,000 - €67,500)Apply agricultural relief: €23,250 (€232,500×10%)CAT on farmhouse: €7,673 (€23,250×33%)The 30ac are also eligible for agricultural relief, meaning only 10% of the value is taxable. But first, the Fair Deal deduction is applied:
Taxable value of land (before relief): €348,750 (€450,000-€101,250)Apply agricultural relief (90% off): €34,875 (€348,750×10%)CAT on land: €11,509Fair Deal contributions: The Fair Deal scheme takes a maximum of 22.5% of the value of the farmhouse and land, reducing the taxable value for CAT purposes. That’s a cash cost to you of €168,750 before you can take ownership of your mother’s house and farm.
Active farmer test: As you’re actively farming and have a green cert, you also qualify for agricultural relief on the land. This reduces your CAT liability to €7,673 on the 30ac.
Farmhouse: Again, you meet the crtieria to qualify for agricultural relief on the farmhouse. You’ll be taxed on the value of the farmhouse after the Fair Deal deduction, leaving you with a CAT bill of €11,509. In total, based on the above estimates you’ll owe €187,932 between CAT and the Fair Deal scheme on the inheritance of the farmhouse and the 30ac.
In the table below, we break this down further to show how the Fair Deal contribution will total €168,750 from the value of the farmhouse and land.
Marty Murphy is head of tax at ifac, which is the professional services firm for farming, food and agribusinesses.
This is a subscriber-only article
SHARING OPTIONS: