You may be faced from time to time with the situation that a farmer client is taking a gift of agricultural property but cannot meet the “Farmer” test. You might recall that the “Farmer” test is the 80% asset test. That is that 80% of the donee’s assets must be agricultural after the gift. The “Farmer” test must be met on the valuation date and for gifting this means the date of the gift.

In a lot of cases, the donee Farmer doesn’t qualify for the relief because they own an off-farm house. So the farmer donee no longer, for example, lives with his parents, having set up home say in a local town, and owns his own house. This can disqualify the farmer from the relief. There are ways around this. In particular, the farmer donee could transfer his or her home to his/her spouse prior to transfer and then arrange for it to be transferred back if needs be. That option is not always available to a farmer donee (he or she may be single, in a relationship but not married or there may be bank consent issues).

The other option or point to note is that the value of the family home of the farmer donee is only the equity value. That is the value less the mortgage outstanding on the property. So, if the farmer donee is in the early stages of their repayments of his or her mortgage then it may be the case that there is a low level of equity in the house, thus permitting the farmer to qualify.

It should be noted that the ability of a farmer to take into account mortgages on a property only applies to the farmer’s family home and not to any other property. All other property is taken at full value regardless of how indebted.

If the farmer still doesn’t qualify for agricultural relief because of the “Farmer test”, then the other route available to the farmer is business property relief. Business property relief will have the same effect as agricultural relief and will be available for donee farmers where donor farmers have been making returns of income (thus demonstrating the existence of a business).

So the question you might ask is, “Why don’t we opt for business relief all the time rather than going through all the hoops of agricultural relief.?”

The main answer to this lies in the fact that the farmer donee if availing of business property relief cannot lease out the land under business relief. So if the farmer donee who can avail of agricultural relief from an asset test point of view, is not a farmer in the real sense (not actively farming – eg living in a city) the farmer donee can still take the land and avail of the relief as long as the farmer donee leases it out to an “active” farmer. This option is not available for business relief. The donee must take the land and farm it him or herself.

It doesn’t mean that the donee actually has to do the farming. The donee can hire a manager to operate the farm (but this is often not a practical solution). The main principle being that the donee farmer availing of business relief must make income tax returns in their own name after the gift for six years (otherwise there will be a clawback of the relief)

While a donee farmer availing of business relief cannot lease out the lands, they could let out the lands on a grazing arrangement (sometimes referred to as agistment). That would be suitable for farms that may be of poorer quality or require less management.

Hopefully that summary is of assistance and if you require any assistance or advice on probate, will drafting or tax matters don’t hesitate to email me at ckelly@hcalaw.ie