Michael Creed (Cork North West, Fine Gael)
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Question 167: To ask the Minister for Finance the liability for inheritance tax on the transfer of an agricultural holding to a nephew who has the required agriculture education benefit from concessions in this area; and if he will make a statement on the matter. [2435/11]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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A transfer of farmland may give rise to tax liabilities under Capital Acquisitions Tax, which includes inheritance tax (CAT), Capital Gains Tax (CGT) and Stamp Duty. CGT is payable by the person disposing of the land while CAT and Stamp Duty are payable by the person receiving the land. However, a number of generous reliefs and allowances reduce the tax burden in such cases. The educational qualifications held by the person receiving the land are not relevant to the liability to CAT or CGT, but they may be relevant to the liability to Stamp Duty.

Capital Acquisitions Tax (CAT)

I am informed by the Revenue Commissioners that for the purposes of CAT (gift and inheritance tax), the relationship between the person who provided the gift or inheritance (i.e. the disponer) and the person who received the gift or inheritance (i.e. the beneficiary), determines the maximum tax-free threshold- known as the "Group threshold" below which gift or inheritance tax does not arise.

There are three group tax-free thresholds based on the relationship of the beneficiary to the disponer. The tax-free threshold that applies is the specific tax-free threshold for the year in which the gift or inheritance is received. The current tax-free thresholds are as follows:

Group A: €332,084 - applies where the beneficiary is a child (including adopted child, step-child and certain foster children) or minor child of a deceased child of the disponer. Parents also fall within this threshold where they take an inheritance of an absolute interest from a child.

Group B: €33,208 – applies where the beneficiary is a brother, sister, a nephew, a niece or lineal ancestor or lineal descendant of the disponer.

Group C: €16,604 – applies in all other cases.

Gifts or inheritances received by a beneficiary from within the same group threshold are aggregated for the purposes of determining whether any tax is payable on the current benefit. Tax at the rate of 25% is payable once the relevant tax-free threshold is exceeded.

Where an agricultural holding is transferred to a nephew/niece, either by way of gift or by way of inheritance, two separate important reliefs from CAT may also apply, apart from the nephew's/niece's normal tax-free threshold, which is the Group B threshold of €33,208. Qualifying farmers can avail of agricultural relief, which reduces the value of the agricultural holding by 90% for tax purposes. In order to qualify for agricultural relief, 80% of a farmer's assets, after having received the gift or inheritance, must consist of qualifying agricultural assets.

Also, a nephew/niece who receives a gift or inheritance is entitled to the Group A tax-free threshold of €332,084 rather than the Group B tax-free threshold of €33,208 provided certain conditions are fulfilled. These conditions are that the nephew/niece has worked substantially on a full-time basis for the disponer in the five years prior to the transfer of the agricultural holding in assisting the disponer in the running of the agricultural business.

Overall, therefore, if a nephew/niece qualifies for both agricultural relief and the relief for nephews/nieces, then the nephew/niece could take a gift or inheritance of an agricultural holding up to the value of €3,320,840 before incurring any liability to CAT and assuming that the nephew/niece had received no previous gifts or inheritances from within the same group.

As noted above, the qualifications held by the nephew are not relevant to his CAT liability.

Stamp Duty

Section 81AA of the Stamp Duties Consolidation Act 1999 provides for an exemption from stamp duty on the transfer of an agricultural holding to a farmer who is under 35 years of age and who is the holder of certain educational qualifications which are listed in Schedule 2B of the Act. Where the exemption does not apply, Stamp Duty is chargeable on the market value of the land transferred. The rates of Stamp Duty which apply are set out in the Table below. The Stamp Duty payable is reduced by 50% where the transferee is a nephew/niece of the transferor.

Capital Gains Tax (CGT)

There are also capital gains tax implications of such a transfer but there may be an entitlement to retirement relief. No capital gains tax will arise if a farmer who is aged 55 years or more and has owned and worked the land for the ten years preceding the disposal, transfers it to a nephew/niece who has worked substantially on a full time basis for the five years prior to the disposal in carrying on, or assisting in carrying on, the farming activity of the farmer.

If the farmer otherwise qualifies for retirement relief, but the nephew/niece does not meet the requirements above, then the transfer is relieved from CGT if the market value of the land does not exceed €750,000 (assuming no previous disposals to which the relief has applied). If there is no entitlement to retirement relief, then CGT is calculated on the market value of the land transferred in the normal way. The current CGT rate is 25%.