Last week we looked at the issue of grazing agreements and the different types of grazing agreements that you can have in practice. While grazing agreements are relatively rare in practice and generally only arise where you have an agricultural client base, their interaction with business relief is a good illustration of how business relief operates and is a useful lens to peer into a relief that can appear complex from the outside.

Part 10 of the Capital Acquisitions Tax Consolidation Act 2003 (“CATCA”) deals with reliefs. It’s divided into three chapters. Chapter 1 on Agricultural Relief. Chapter 2 on Business Relief and Chapter 3 on Miscellaneous Reliefs. Chapter 2 on business relief is by far the longest chapter containing 13 sections. A beneficiary will receive a business asset at 10% of its value if the asset qualifies for the relief. The asset must be relevant business property (s. 93 CATCA). So for example, the property (somewhat obviously) must consist of a business or an interest in a business (s. 93(1)(a) CATCA) (so for example owning a solicitors practice) or more than 25% of the shares in a private company (s. 93(1)(b) CATCA) or land used in connection with a business controlled by the disponer (s. 93(1)(e) CATCA).

Importantly, the asset will not qualify for the relief if the asset consists of wholly or mainly of making or holding investments (s. 93(3)). Further, the asset will not qualify for relief if the asset is not used wholly or mainly for the purpose of the business concerned (s. 100 (2)).

This has important ramifications for the farmer who wishes to dispose of the property. Normally a farmer can dispose of property and the beneficiary will obtain agricultural relief. However, sometimes that relief is not available due to the fact that the beneficiary does not meet the farmer test from an asset point of view (ie the 80% asset test). It can often be the case that the farmer disponer will still be able to transfer a farm with the benefit of business relief. Or alternatively, on death, a beneficiary can claim business relief from the farm that has been inherited.

However, it can be the case that the farmer is not actively farming the farm, prior to gift or death. This is not a problem for agricultural relief, but it is a significant problem when it comes to business relief, because if there is no farming activity, then the farm is not a business.

Grazing agreements can be a useful tool in these cases. If a farmer is elderly and cannot engage in farming, he could choose to let out the farm on a short-term basis (be that agistment or conacre). You might say to yourself, “Well that seems like a lot of hassle for the farmer, why doesn’t he lease out the lands”. The difficulty with leasing the lands is that the lands do not qualify for business relief as such activity means that the lands consist of holdings and investments rather than a business. The leading case on this is that of Martin v CIR [1995] STC (SDC) 5.

However, an agistment/conacre arrangement does meet the criteria due to the active participation of the farmer in the arrangement.

This was set out in the case of Collins v Maher (Inspector of Taxes) where both the Appeal Commissioner and the Circuit Court held that business relief applied to lands let under agistment/conacre. In this particular case the farmer let the lands for the traditional grazing season and in addition, would have inspected the lands daily, looked out for disease and ensured that weeds were kept down. These actions speak of business activity rather than passive investment and demonstrate the operation of a farm as a business.

So it can be seen that grazing agreements, which might be perceived as being an out-of-date or old-style method of land management can in fact turn out to be a useful tax planning tool.

Hope this helps and if you have any will drafting, CAT, or probate queries please don’t hesitate to email me at ckelly@hcalaw.ie