Securing your farm's legacy

Succession considerations for farmers

Regardless of the scale of the farming enterprise, passing land and agricultural assets to the next generation tax efficiently is generally a top priority. While there is no silver bullet to guarantee the successful transfer of a farm from one generation to the next, substantial challenges and difficulties can be mitigated through early and honest engagement in the transfer process.  

Davy, together with your legal, tax and other advisers can assist you through this journey, through a tailored financial plan.  While the considerations are wide ranging, based on the situation and personal circumstance, an area of interest always tends to be around: “how much tax will the beneficiary have to pay, and will the land transfer qualify for Agricultural Relief?”   

What is agricultural relief?

Agricultural Relief is a Capital Acquisitions Tax (CAT) relief which reduces the taxable value of agricultural property for CAT purposes by 90%. This applies to both gifts and inheritances. The current rate of CAT is 33%

What assets qualify as agricultural property?

Agricultural land, farm buildings and dwelling houses (in certain circumstances), farm machinery, livestock and bloodstock, and the all-important EU single farm payment entitlements all qualify as agricultural property.   

How to qualify for agricultural relief? 

Condition 1: The Farmer Test

On the valuation date, the beneficiary’s total asset base, after taking the gift or inheritance, consists of at least 80% agricultural property. 

The valuation date for a gift is generally the date the beneficiary receives it. For an inheritance, this will typically either be the date of death or the date the grant of probate issues depending on the circumstance.       

The Farmer Test can be calculated by dividing the beneficiaries’ agricultural assets by their total assets.  Debt is generally not allowed as a deduction, however Revenue allow a mortgage on the beneficiaries’ home to be deducted.  In addition, Revenue accepts that a future entitlement to a pension fund need not be included for the purposes of the asset test. Therefore, a successor can use pension funding to efficiently plan for their retirement without impeding the availability of the relief.   

People are living longer, and farmers may not wish to, or may not be in a position to transfer agricultural property to their intended beneficiaries at an early stage.  As a result, the beneficiaries may have a substantial non-agricultural asset base, leading to the Farmer Test not being met on the valuation date.  What should you consider if this is applicable?  

• If the beneficiary intends to farm themselves, they may look to avail of a similar relief known as Business Relief, which also reduces the value of the agricultural property by 90% for CAT purposes.  This relief can apply where all of the conditions for Agricultural Relief are not met.
• The beneficiary might look to re-arrange their asset base prior to receiving the agricultural property so the Farmer Test can be satisfied.  
• Where there are multiple potential beneficiaries and non-agricultural assets such as a share portfolio, investment properties and/or a pension fund, you could consider specifying in your will that one beneficiary receives the agricultural assets only (increasing their chances of meeting the Farmer Test) and the other beneficiaries receive the non-agricultural assets.  This can also provide the dual benefit of achieving a degree of estate equalisation.
• Cash can currently qualify as an agricultural asset, provided it is invested in agricultural property within two years of receiving the gift or inheritance. (Changes to Agricultural Relief announced in Budget 2025 proposed that this measure would be abolished. This is subject to a Ministerial Commencement Order). 
• Depending on the age profile, life stages and interests of the next generations, it is not unusual for farms to be willed or transferred directly from grandparents to a grandchild or grandchildren. 

Condition 2: The Active Farmer Test

To qualify as an Active Farmer, the beneficiary must either actively farm the land themselves or lease the land to an active or qualified farmer for 6 years from the date of the gift or inheritance. Otherwise, a clawback of the relief claimed will apply.   

While it is not strictly necessary that the beneficiary or lessee have a farming qualification, in cases where they don’t, they must farm the land for at least 50% of his/her normal working time. Revenue accepts a normal working week as 40 hours, so for those with other employment, they can qualify for agricultural relief where they work on the farm for at least 20 hours per week.  

Should I transfer the land or leave it in my will? 

There are several considerations here and specialised advice should be sought prior to actioning.  

From a tax perspective, where assets pass under the terms of a will, CAT should in most cases be the sole capital tax consideration.  In a lifetime transfer, Capital Gains Tax (CGT) (headline rate 33%) and Stamp Duty (headline rate on land 7.5%) should also be considered.  While exploring the detail around these taxes and the potential reliefs would go beyond the scope of this note, it is worth noting that the potential reliefs can be limited where the person disposing is over the age of 70 or the beneficiary is over the age of 35.   

There are many other non-tax considerations which families need to consider and there is no one size fits all approach.  Open conversations with all parties involved can be the beginning of formulating a successful succession plan that works for all parties.   

How can our Financial Planning team help?

At Davy, financial planning is a core component of our client offering. In the midst of farming life, we understand that it can be difficult to step back and take a holistic view of your entire asset base and financial position. Through comprehensive financial planning, we provide you with a strategic view of your financial situation, enabling you and your family to make well-informed decisions over time. Our financial plans are designed to evolve as your personal and financial circumstances do. Your Davy adviser will collaborate with a team of tax and pension specialists to develop a bespoke financial plan, complete with measurable goals and actionable steps.