UK ag is in turmoil over APR... so what does it mean for Ireland?

Unlike many other taxes which share commonality with the UK system, their inheritance tax system is fundamentally different to ours. 

In Ireland, the beneficiary is taxed on the benefits they receive, be they gifts or inheritances, and beneficiaries have what is referred to as 'Lifetime tax-free thresholds', depending on their relationship to the transferor, which is more correctly referred to as a disponer. 

In Ireland, essentially, gifts and inheritances are treated almost identically from a tax perspective to such a degree that the terms gift tax, inheritance tax and the technical term of capital acquisitions tax are all used interchangeably in common parlance.

In Ireland, amongst the farming community, we are also acutely aware that Agricultural Relief offers a 90% discount in assessing the taxable value of farmland and farmhouses where relevant conditions are met, and this relief is a cornerstone for the effective transfer of farm holdings from one generation to another with very little tax applying if any, again where relevant criteria are met.

In contrast, the UK system does not tax gifts, but where the disponer dies within seven years, a clawback applies and tapered inheritance tax applies at rates between 40% to 8% depending on how much time passed between the date of the gift and the date of inheritance.

Also, in contrast to Ireland, there is a tax-free amount that applies to inheritance, but it applies to the whole of the estate and not individually to recipients; as such, the inheritance tax applies to the estate rather than to the beneficiaries.

Lastly, and most importantly, in terms of the changes announced in the UK, Budget relief is available at up to 100% on farm holdings from inheritance tax under their Agricultural Property Relief (APR), whereas the tax relief in Ireland, albeit not an equivalent relief, is 90%.

The Budget announcement is seeking to put a cap of announcement is seeking to put a cap of £1m on APR above the standard tax-free threshold of £335,000, and any excess above that level can only qualify for 50% relief.

A practical example

So, in practical terms, what does this mean? A farm worth £3m could, where conditions are satisfied, be transferred tax-free presently via inheritance under the existing regime.

Under the new rules set to come into effect in April 2026, the first £335,000 is exempted. Generally, the next £1m can qualify for 100% APR where conditions are met, and the remainder £1.665m can qualify for 50% relief, leaving £832,500 of the inheritance subject to a potential tax of 40% with lesser tax applying if it were gifted in the previous seven years.

While the example is a bit mathsy, the nuts and bolts of it is that a farm worth £3m will potentially carry an inheritance tax liability of, say up to £330,000, and that’s even a best-case scenario in the case of a proper full-blown inheritance (not a gift) where the beneficiary actually carries on the trade of farming.

In contrast, in Ireland, a farm worth €3.5m could be transferred to a child without inheritance tax, where the combination of Agricultural Relief and lifetime threshold works to strip away the tax even where the successor goes on to lease out the land.

Why is this relevant from an Irish context? Clearly, the UK is financially in a bit of a corner, and they see adjustments to the inheritance tax regime as being up for grabs.

Back home, after what was heretofore unlimited Agricultural Relief over recent decades, the Government have made a half-hearted effort to augment the Agricultural Relief rules in our most recent Budget to deny successors the capacity to claim Agricultural Relief where the land hasn’t been leased to a full time or trained farmer or farmed by the disponer as a full time or trained farmer for the year years prior to the gift or inheritance after January 1, 2025, with some phasing in.

Overall, the new rules are a mess and actually don’t address the fundamental issue at the heart of rural Ireland, where farmers cannot afford to expand their farm holdings and are trapped in a system where much of the tax reliefs are aligned to support inactive land owners, be that the leased land exemption, retirement relief or agricultural relief.

The recent changes have made a start by denying the leased land income tax exemption for the first seven years following land purchase and more recently by stripping away the ability of a person to gift on monies to a beneficiary to enable them to obtain agricultural relief, but in doing so, they have also stripped away what was a very genuine occurrence where a young farmer would be supported typically by their parents to enable that child to add on to the farm holding. Perhaps some consideration should have been placed on introducing a tapering of the relief beyond a certain threshold.

Historically, we had such as system. As recently as 1996, farm assets up to a value of £300,000 qualified for Agricultural Relief to a maximum of 65% and the balance above that at a maximum of 50% in the case of an inheritance, albeit a tax-free amount would also be afforded by a recipients lifetime threshold.

The UK changes on foot of the Budget announcement do now put in contrast how generous our tax system is on what one may perceive as being significant land holdings.

• Kieran Coughlan is an accountant and tax advisor at Coughlan Accounting.