In this article, James Porter looks at the impact of inheritance tax on a farm.
With the endless to-do list that comes with running a farm, it is easy to let certain aspects slip through the net.
But finances should always be at the forefront of your thinking to ensure your agricultural endeavours remain sustainable.
If you do not plan ahead, the passing of a family member can have a significant impact on your farm and ultimately deal a blow to your financial stability.
In this article, we will explore how inheritance tax can affect the transfer of agricultural property, and explain ways you can help to limit the impact the passing of a family member can have on your financial obligations.
What is inheritance tax?
Inheritance tax is a tax that is levied on the estate of a deceased person.
When a farmer dies, their farm is often passed down to their children. However, the children may have to pay inheritance tax on the farm.
This can have a significant impact on the property, as it can reduce the amount of money available for investment and make it more difficult to keep the farm running smoothly.
In Ireland, this tax is usually referred to as the Capital Acquisitions Tax (CAT), and is charged at a rate of 33%.
In certain situations, the government provides relief on this levy, which reduces the amount the beneficiary is obliged to pay.
One of those reliefs refers explicitly to agricultural property. Agricultural Relief reduces the property’s taxable value by 90%, providing you meet the qualifying conditions.
Essentially, these conditions refer to the length of time the property has been used for agricultural purposes, as well as the farm’s value in relation to your total property value.
What is agricultural property?
When talking about agricultural relief, the property in question does not just refer to the land of the farm itself. It also includes any buildings, livestock and machinery related to the processes and running of the farm.
Before new legislation was passed in 2008 to include all other aspects of a farm’s value, agricultural property only referred to land, pasture and woodland.
It is important to stay up-to-date with the latest farming news and legislative changes like this to allow you to properly prepare in the instance that ownership of a farm is passed on.
How can farmers manage the impact of inheritance tax on their farm businesses or family farms?
There are a number of ways that farmers can plan for and manage the impact of inheritance tax on their farm businesses or family farms.
The best thing to do to prepare is to seek the advice of a solicitor – whilst this might be an initial expense, it could save you larger fees further down the line.
Farmers can also take out life insurance policies. These can provide financial security for family members in the event that the farmer dies and the farm is subject to inheritance tax.
By taking these steps to plan ahead, farmers can ensure that their farm businesses or family farms are not adversely affected by inheritance tax.
To sum up
As we have explored in this article, farmers need to be aware of the potential impact of inheritance tax when planning for their retirement.
This is especially important if they have young children who are not yet ready to take over the farm.
By understanding the potential implications of inheritance tax, farmers can make sure that their family’s livelihood is protected long into the future.
James Porter is a young farmer who has recently moved back home to the family farm after graduating from university in London.
He loves helping out with the daily tasks on the farm, is always eager to learn new things and hopes to continue farming for many years to come.