(1) In this section-

["agricultural property" means-

(a) agricultural land, pasture and woodland situate [in a member State]¹ and crops, trees and underwood growing on such land and also includes such farm buildings, farm houses and mansion houses (together with the lands occupied with such farm buildings, farm houses and mansion houses) as are of a character appropriate to the property, and farm machinery, livestock and bloodstock on such property, and

(b) a payment entitlement (within the meaning of Council Regulation (EC) No. 1782/2003 of 29 September 2003 (OJ No. L270 of 21.10.2003, p. 1));]²

"agricultural value" means the market value of agricultural property reduced by 90 per cent of that value;

"farmer" in relation to a donee or successor, means an individual ...³ in respect of whom not less than 80 per cent of the market value of the property to which the individual is beneficially entitled in possession is represented by the market value of property [in a member State]¹ which consists of agricultural property, and, for the purposes of this definition-

[(a) no deduction is made from the market value of property for any debts or encumbrances (except debts or encumbrances in respect of a dwelling house which is the only or main residence of the donee or successor and which is not agricultural property), and]⁴

(b) an individual is deemed to be beneficially entitled in possession to-

(i) an interest in expectancy, notwithstanding the definition of "entitled in possession" in section 2, and

(ii) property which is subject to a discretionary trust under or in consequence of a disposition made by the individual where the individual is an object of the trust.

(2) Except where provided in subsection (6), in so far as any gift or inheritance consists of agricultural property-

(a) at the date of the gift or at the date of the inheritance, and

(b) at the valuation date,

and is taken by a donee or successor who is, on the valuation date and after taking the gift or inheritance, a farmer, section 28 (other than subsection (7)(b) of that section) shall apply in relation to agricultural property as it applies in relation to other property subject to the following modifications-

(i) in subsection (1) of that section, the reference to market value shall be construed as a reference to agricultural value,

(ii) where a deduction is to be made for any liability, costs or expenses in accordance with subsection (1) of that section only a proportion of such liability, costs or expenses is deducted and that proportion is the proportion that the agricultural value of the agricultural property bears to the market value of that property, and

(iii) where a deduction is to be made for any consideration under subsection (2) or (4)(b) of that section, only a proportion of such consideration is deducted and that proportion is the proportion that the agricultural value of the agricultural property bears to the market value of that property.

(3) Where a taxable gift or a taxable inheritance is taken by a donee or successor subject to the condition that the whole or part of that taxable gift or taxable inheritance will be invested in agricultural property and such condition is complied with within 2 years after the date of the gift or the date of the inheritance, then the gift or inheritance is deemed, for the purposes of this section, to have consisted-

(a) at the date of the gift or at the date of the inheritance, and

(b) at the valuation date,

of agricultural property to the extent to which the gift or inheritance is subject to such condition and has been so invested.

(4)[(a) Where-

(i) all or any part of the agricultural property (other than crops, trees or underwood) comprised in a gift or inheritance is disposed of or compulsorily acquired within the period of 6 years after the date of the gift or inheritance, and

(ii) the proceeds from such disposal or compulsory acquisition are not fully expended in acquiring other agricultural property within a year of the disposal or within 6 years of the compulsory acquisition,

then, except where the donee or successor dies before the property is disposed of or compulsorily acquired, all or, as the case may be, part of the agricultural property shall, for the purposes of subsection (2) and in accordance with paragraph (aa), be treated as property comprised in the gift or inheritance which is not agricultural property, and the taxable value of the gift or inheritance shall be determined accordingly (without regard to whether the donee or successor has ceased to be a farmer by virtue of the disposal or compulsory acquisition) and tax shall be payable accordingly.

(aa) For the purposes of paragraph (a)-

(i) the market value of agricultural property which is treated under paragraph (a) as not being agricultural property is determined by the following formula-

V1  x   N 
          V2

where-

V1 is the market value of all of the agricultural property on the valuation date without regard to paragraph (a),

V2 is the market value of that agricultural property immediately before the disposal or compulsory acquisition of all or, as the case may be, a part thereof, and

N is the amount of proceeds from the disposal or compulsory acquisition of all the agricultural property or, as the case may be, a part thereof, that was not expended in acquiring other agricultural property,

and

(ii) the proceeds from a disposal include an amount equal to the market value of the consideration (not being cash) received for the disposal.]¹

(b) If an arrangement is made, in the administration of property subject to a disposition, for the appropriation of property in or towards the satisfaction of a benefit under the disposition, such arrangement is deemed not to be a [disposal]² or a compulsory acquisition for the purposes of paragraph (a).

(c) The agricultural value in relation to a gift or inheritance referred to in subsection (2) shall cease to be applicable to agricultural property, other than crops, trees or underwood, if the donee or successor is not resident in the State for any of the 3 years of assessment immediately following the year of assessment in which the valuation date falls.

(4A) Where the proceeds referred to in subparagraph (ii) of subsection (4)(a) are expended in acquiring agricultural property which has been transferred by the donee or successor to his or her spouse, such property shall not be treated as other agricultural property for the purposes of that subparagraph.

(5) For the purposes of subsection (2), if, in the administration of property subject to a disposition, property is appropriated in or towards the satisfaction of a benefit in respect of which a person is deemed to take a gift or an inheritance under the disposition, the property so appropriated, if it was subject to the disposition at the date of the gift or at the date of the inheritance, is deemed to have been comprised in that gift or inheritance at the date of the gift or at the date of the inheritance.

(6) Subsection (2) shall apply in relation to agricultural property which consists of trees or underwood as if the words "and is taken by a donee or successor who is, on the valuation date and after taking the gift or inheritance, a farmer," were omitted from that subsection.

(7) In this section, any reference to a donee or successor includes a reference to the transferee referred to in section 32(2).