Agricultural relief, explained
Agricultural relief cuts the taxable value of farm property by 90%. For most families passing on a working farm, it decides whether the tax bill is in the hundreds of thousands, or little or nothing.
In short
- Farm property is taxed on 10% of its market value.
- You must pass two tests: the 80% farmer test and the active farmer test.
- You must keep farming the land, or lease it to an active farmer, for 6 years.
- You claim it on the IT38 tax return, and you must file even if no tax is due.
What counts as agricultural property
The relief only applies to agricultural property. That means:
- agricultural land, pasture and woodland in the EU or the UK
- crops, trees and underwood growing on that land
- farm buildings and a farmhouse, where they are of a character appropriate to the land that goes with them
- livestock, bloodstock and farm machinery on the land
- EU payment entitlements
Test 1: the 80% farmer test
On the valuation date, at least 80% of everything you own, including what you're inheriting, must be agricultural property. It's measured on gross values, and most debts aren't deducted. This is the test people fail most often without realising it, so it has its own guide.
Test 2: the active farmer test
You must do one of these for at least 6 years from the valuation date:
- Farm it yourself on a commercial basis, with a view to making a profit. You must also hold an approved agricultural qualification, such as the Green Cert, or get one within 4 years, or spend at least half your normal working time farming. Revenue treats normal working time as about 40 hours a week, so someone with an off-farm job can still qualify by averaging at least 20 hours a week on the farm over a year.
- Lease it, in whole or substantially (at least 75% by value), to someone who farms it commercially and meets the same qualification or working time condition.
It's you who must meet the test. Your spouse or partner farming the land doesn't count.
A worked example
Seán inherits his father's farm. The land, stock and machinery are worth €2,000,000. Seán owns a house worth €300,000 with a €150,000 mortgage, and has €50,000 in savings. He has a Green Cert and will keep farming. For the 80% test, the mortgage comes off the value of his house, because he took it out to buy his own home and that home isn’t farm property. So his own assets count as €200,000.
| 80% farmer test | €2,000,000 of €2,200,000 = 90.9%. Passes. |
|---|---|
| Taxable value with relief | 10% of €2,000,000 = €200,000 |
| Tax with relief | €0, because €200,000 is under the €420,000 Group A threshold |
| Tax without relief | (€2,000,000 − €420,000) × 33% = €521,400 |
Seán still has to file an IT38 return to claim the relief, even though no tax is due.
Keeping the relief: the 6-year rules
Revenue can take some or all of the relief back if, within 6 years of the valuation date:
- you sell or dispose of the property (including under a compulsory purchase order) and don't reinvest the proceeds in other agricultural property within 1 year (6 years for a compulsory purchase). Partial reinvestment means a partial clawback.
- you stop farming it commercially, or stop meeting the qualification or working time condition
- you lease it and the lessee stops meeting the conditions
Land with development value has a longer clawback. If it's sold between years 6 and 10, the relief on the development value is taken back, and reinvesting doesn't prevent it.
How to claim
You claim the relief on the IT38 gift and inheritance tax return, through Revenue's myAccount or ROS. A return is required whenever you claim agricultural relief, whatever the value. The pay-and-file deadline is 31 October: in the same year if the valuation date falls between 1 January and 31 August, and in the following year if it falls between 1 September and 31 December.
A change to watch
A further active-farmer condition, which would apply to the owner rather than to you, is set out in law but hasn't yet been brought into force. Check the position with your advisor before you rely on the relief.
Common questions
Does agricultural relief apply to a gift as well as an inheritance?
Yes. It works the same way for a farm given during the owner's lifetime, with the tests measured on the date of the gift.
Can I get agricultural relief if I work off the farm?
Yes, if you hold an approved agricultural qualification such as the Green Cert, or spend at least half your normal working time farming, or lease the land for at least 6 years to an active farmer.
Do I have to file a return if no tax is due?
Yes. You must file an IT38 whenever you claim agricultural relief, whatever the value.
See what the reliefs would mean for your own farm. It takes about five minutes, and your answers stay on your phone.