Agri-Business: Navigating Agricultural Relief Rules

Agricultural Relief is about facilitating the succession of farm businesses to new generations of farmers. It is part of the Capital Acquisitions Tax (CAT) system in Ireland. In simple terms, it reduces the Capital Acquisitions Tax that you pay on farm transfers.

Under normal Capital Acquisitions Tax conditions, you would pay 33% tax on the total market value of the farm being received as a gift or inheritance (to the extent the market value is in excess of the relevant CAT exemption threshold). Agricultural Relief reduces the total market value of the farm by 90%, significantly reducing and potentially eliminating the CAT payable (e.g., when any remaining CAT exemption thresholds are factored in).

In this blog, we are going to look at the core rules around Agricultural Relief, focusing on who can qualify. We’ll also cover the main practical steps and planning you should undertake now to optimise your tax position and/or the tax position of your successors.

Agricultural Relief Explained and Who Qualifies

There are a number of conditions to qualify for Agricultural Relief.

The main conditions are:

• The assets received as a gift or inheritance consist of “Agricultural Property”.
• The beneficiary meets the 80% “asset test” on the valuation date for the gift/inheritance.
• The beneficiary meets the “active farmer test” (working as a farmer for a minimum of six years commencing on the valuation date of the gift or inheritance of the Agricultural Property).

Agricultural Property

The property being gifted must be agricultural property. Agricultural property would include:

• Agricultural land, pasture, and woodland situated in the EU or the UK.
• Crops, trees, and underwood growing on such land.
• Farm buildings, farm houses, and mansion houses (together with the lands occupied within such farm buildings, farm houses, and mansion houses) as are of a character appropriate to the property.
• Farm machinery.
• Livestock.
• Certain payment entitlements.

Clarifying Farmhouses

You will see that farmhouses and mansion houses only qualify as Agricultural Property where they are “of a character appropriate” to the lands they sit on. Not every house standing on agricultural land will pass this test.

The question is whether the property is a farmhouse with land attached, or a residence that happens to have land around it. Where there is any doubt, this is worth raising with an advisor early, as the answer affects both the relief on the house itself and the 80% asset test.

It is essential that the property being received as a gift/inheritance is considered “Agricultural Property” under both of the following conditions:

On the date of the gift or the date of the inheritance (usually the date of death).

On the valuation date. The valuation date is typically the date on which the beneficiary becomes entitled to retain the asset for their own benefit (in inheritance cases, this is normally on or shortly after the grant of probate).

Asset Test

To qualify under the asset test, at least 80% of the beneficiary’s total gross assets, after receipt of the gift/inheritance in question, must consist of “agricultural property” as noted above.

This is one of the areas where Agricultural Relief becomes complicated. We have given an overview below, but it is important to get professional advice to understand your position (and, potentially, the position of your successor) in relation to the asset test.

Under Agricultural Relief asset test rules, all the property owned by the beneficiary is taken into account, including their share of jointly owned property. This includes the farm being gifted or inherited, as well as property owned prior to the gift or inheritance. For example, this can include:

• Property owned prior to the farm gift or inheritance – residential property, car, and bank savings.
• Farm property gifted or inherited – farmland, farmhouse, livestock, and machinery.

When undertaking the 80% asset test, it is the gross market value of the beneficiary’s assets that is included in the calculation.

Any loans on the land cannot be deducted from the gross value. There is one exception to this – debts or encumbrances in respect of an off-farm dwelling house not qualifying as agricultural property can be deducted when carrying out the asset test. The dwelling house in question must be the only or main principal private residence of the beneficiary, and the loan must have been used specifically to purchase, improve, or repair that dwelling.

It’s important to note that any other borrowings secured against the home (for example, where a homeowner has re-mortgaged to fund a holiday, a car purchase, or business expenditure) are not deductible for the asset test, even though they are charged on the principal private residence.

These nuances again highlight the importance of getting professional advice.

Asset Test Example

The beneficiary currently owns:

• House – €175,000
• Car – €8,000
• Savings – €3,000

The beneficiary of the farm is going to inherit:

• Farmland – €600,000
• Livestock & machinery – €200,000

The total value of the agricultural property is €800,000. The gross value of the beneficiary’s total assets after the inheritance will be €986,000. Therefore, the agricultural property will constitute 81.1% of the beneficiary’s total gross assets after they inherit the farm. Therefore, the beneficiary qualifies under the 80% asset test for agricultural relief.

In this case, as the criteria for Agricultural Relief are met, the total market value of the agricultural property for the purposes of calculating CAT is reduced by 90%, i.e., from €800,000 to €80,000.

Let’s assume this is a parent transferring a farm to a child, and the child has a fully unutilised tax-free “Group A” threshold of €400,000. Without Agricultural Relief, the taxable amount is €400,000 (the €800k value minus the €400k threshold), resulting in a significant tax bill of €132,000 (33% of €400,000).

However, with Agricultural Relief, the value of the farm is reduced by 90% to just €80,000. Because this €80,000 is entirely covered by the child’s €400,000 Group A threshold, their actual CAT liability drops to exactly €0.

Active Farmer Test

The beneficiary receiving the agricultural property must satisfy one of three “active farming” tests for a minimum period of six years commencing on the valuation date of the gift or inheritance. In summary, these are:

• The beneficiary is an Active Farmer
• The beneficiary is a Qualified Farmer
• The beneficiary leases the farm to an Active or Qualified Farmer

More details on each are below.

The Beneficiary is an Active Farmer

The first way to satisfy the active farming test is where the beneficiary farms the land themselves as an Active Farmer. In general, an Active Farmer is one who spends no less than 50% of his or her normal working time farming agricultural property (including the property comprised in the gift or inheritance).

Revenue accepts that normal working time (combining on-farm and off-farm work) is approximately 40 hours per week. This means that around 20 hours per week of farming activity will satisfy the test.

Importantly, a beneficiary can hold an off-farm job and still qualify, even if the job is full-time or more than 20 hours per week. Provided they meet the 20-hour-per-week farming threshold averaged over the year, and the farm is run on a commercial basis with a view to profit, the beneficiary can still qualify.

What about a situation where a beneficiary does intend to start farming but is genuinely unable to do so immediately from the valuation date because of existing work commitments or other personal circumstances? In this situation, the Revenue will not typically refuse the relief provided the beneficiary begins actively farming the land within one year of the valuation date of the gift or inheritance. In such circumstances, the six-year period will start from the date that the farming is taken up.

The Beneficiary is a Qualified Farmer

The second way to satisfy the active farming test is where the beneficiary is a Qualified Farmer and farms the land themselves on a commercial basis and with a view to the realisation of profits.

A Qualified Farmer is one who holds a specified farming qualification, such as a Green Cert, and farms the land.

The beneficiary does not need to hold the qualification on the date of the gift or inheritance. They can still qualify if the qualification is obtained within four years of that date. This gives younger beneficiaries who are still completing their education a window to qualify.

The Beneficiary Leases the Farm to an Active or Qualified Farmer

The final way to satisfy the active farming test is where the beneficiary leases the whole agricultural property (or most of it – at least 75% by value) to an Active or Qualified Farmer.

They must lease the farm under these conditions for at least six years from the valuation date of the gift or inheritance.

The farming activity undertaken by the lessee must be on a commercial basis and with a view to the realisation of profits.

It’s important to note situations where a farmhouse or mansion house forms part of the gift or inheritance, as satisfying the active farming test via the lease route can raise particular issues. For example, does the house need to be leased? Can relief on the house be preserved? You should get professional advice in these circumstances.

Additional Considerations for Active Farming Tests

It is important to highlight that it is the beneficiary who must satisfy one of the active farming tests. This means farming carried out by the beneficiary’s spouse, for example, will not satisfy the requirement on the beneficiary’s behalf.

This particularly applies to farming families where there is a long-standing practice of joint working.

Agricultural Relief Tips and Clawbacks

Form IT38

Where Agricultural Relief is claimed on a gift or inheritance, the beneficiary must file a Form IT38 within the required deadline for that period.

Formal Lease

As mentioned above, if the beneficiary receiving the farm is not in a position to personally farm the land, they can lease it to an active or qualified farmer to retain the relief. However, a casual or handshake agreement will not be sufficient.

To satisfy the strict criteria for Agricultural Relief, there must be a formal written lease in place for a continuous period of at least six years commencing on the valuation date.

The lease must cover the whole agricultural property (or most of it – at least 75% by value). Furthermore, the lessee must qualify as either an Active or Qualified farmer in their own right and must farm the land on a commercial basis with a view to making profits.

The lessee can be an individual, a partnership, or a company (subject to particular conditions in situations where the lessee is a company).

It is highly recommended to include specific clauses in the written lease that legally oblige the tenant to maintain active farming activities for the full term, as the tenant’s failure to do so will trigger a tax clawback for the beneficiary.

Relief Withdrawal and Clawback

There are certain conditions under which the Revenue can withdraw or clawback Agricultural Relief. An example is if the beneficiary of the farm gift or inheritance disposes of any part of the property within six years of the valuation date.

To preserve the relief, the full proceeds of the sale must be reinvested in other agricultural property within one year of the disposal (or within six years where the disposal arose as a result of a compulsory acquisition). If only part of the proceeds is reinvested, only part of the relief is preserved.

Note that this clawback also applies to a scenario where the beneficiary gifts the property within the six-year window. In these cases, the Revenue treats the market value of the gifted property as the proceeds. As no actual cash changes hands, there is nothing to reinvest, so a clawback of the relief is likely. It is recommended that you consult a tax practitioner before making any such onward gifts.

This point can become more complicated in the case of development land, as development land is treated more harshly.

For the first six years from the valuation date, the standard clawback rules apply (with the option to mitigate by reinvesting the sale proceeds in other agricultural property within one year). However, where the agricultural property is development land (broadly, land whose market value exceeds its current use value due to development potential), there is an extended clawback period running from the sixth to the 10th anniversary of the valuation date.

If the land is sold during this six to 10-year window, the relief attributable to the development value (but not the current use value) will be clawed back. Furthermore, reinvestment of the proceeds will not prevent the clawback.

Active Farmer Test

The Active Farmer test must be adhered to by the beneficiary and/or the lessee of the agricultural property for a minimum of six years commencing on the valuation date of the gift/inheritance. If the Active Farmer test is not met for the full six-year period, the relief may be clawed back.

New Agricultural Relief Rules

Please note that the Finance Act 2024 introduced revised legislation for the operation of Agricultural relief. At the time of writing (May 2026), this legislation has not taken effect as it is subject to a Ministerial Order. However, it is important to be aware of it.

The new legislation is broadly similar to the current legislation. The main change is a new condition on the disponer (the person making the gift or leaving the inheritance).

Under the new rules, the disponer must have owned the agricultural property for at least six years prior to the transfer. Additionally, they must, during that period, have either farmed the land themselves or leased it to an active farmer.

In practical terms, this means disponers who plan to gift or leave farmland in the medium term should start thinking now about whether they will meet the new six-year ownership and active-use requirement at the point of transfer. Two situations in particular warrant early review:

• Land acquired relatively recently
• Land let on conacre or to a non-active farmer

More information on both situations is below.

Land Acquired Relatively Recently

The new rules require the disponer to have both owned the land for six years and either farmed it or leased it to an active farmer for that period. A transitional rule eases this requirement for disponers who already owned the land before 1 January 2025.

For transfers in the period to 31 December 2030, only the period from 1 January 2025 to the date of the transfer needs to satisfy the active-use condition (rather than a full six years). Here are some examples:

• A transfer in March 2025 requires only around two months of qualifying activity
• A transfer in 2028 requires roughly three years of qualifying activity
• From 1 January 2031, the full six years of qualifying activity will be required

Two practical points follow:

• The transitional rule only helps disponers who already owned the land before 1 January 2025. Anyone who acquires land after that date must wait the full six years.
• Even disponers relying on the transitional rule must ensure their arrangements are compliant from 1 January 2025 onwards. Where land is currently let on conacre or farmed informally by a family member without a formal lease, now is the time to put the position on a proper footing.

Land Let on Conacre or To a Non-Active Farmer

Under the new rules, leasing the land during the six-year period only counts towards the disponer’s qualifying activity where the lessee is themselves an active farmer. Disponers who currently let land on short-term conacre arrangements, or to a tenant whose farming credentials would not stand up to scrutiny, may need to restructure those arrangements ahead of commencement.

Take Steps Now

Although the new rules are not yet in force, the transitional dates run from 1 January 2025 regardless. So, even though the rules await commencement, disponers should treat their arrangements from 1 January 2025 as already being on the clock. Once commencement is announced, the transitional rule will look back to that date.

Support from Gilroy Gannon

Our tax experts have extensive experience serving the farming community, including help with farm succession planning, Agricultural Relief, and related issues. Get in touch to arrange a consultation and get advice on your specific situation.