Taxation

Income derived from leasing land on a long-term lease may be exempt from tax up to certain thresholds. Leases between close relatives do not qualify and to qualify a lease of farm land must be in writing or evidenced in writing and for a definite term of 5 years or more. The IFA Master Land Lease meets the necessary criteria.

Qualifying lease taken out from 1 January 2007 to 31 December 2014

For periods up to 31 December 2014 an individual aged 40 years or over, or an individual who is permanently incapacitated by mental or physical infirmity from carrying on a trade of farming, may be entitled to an exemption from income tax of certain income arising from leasing of farm land.
The amount of the relief, (subject to the maximum limit) is allowed as follows:

• €20,000 where the lease / leases are for a term of at least 10 years
• €15,000 where the lease/ leases are for a term of at least 7 years
• €12,000 of annual leasing income where the lease/leases are for a term of at least 5 years

Leases entered into on or after January 1, 2015

With effect from 1 January 2015 the age restriction and the requirement to be permanently incapacitated were removed, the amount of income that may be exempted under a qualifying long term lease was increased and a fourth threshold introduced for lease periods of 15 or more years with income of up to €40,000 being exempted.

• €40,000 where all the qualifying leases are for 15 years or more,
• €30,000 where all the qualifying leases are for 10 but less than 15 years,
• €22,500 where all the qualifying leases are for 7 but less than 10 years, and
• €18,000 where all the qualifying leases are for 5 or 6 years.

For more information see the Revenue website

USC is payable for all those with an income of €13,000 or more in a year.

With effect from January 1, 2018 the following rates of USC apply:

0.5% on  all income from 0 up to  €12,012
2.0% on earnings between  €12,012 and  €19,372
4.75% on any income between   €19,773 and €70,044
8% on any income over €70,044
11% on self-employed income in excess of €100,000

Self-employed people, including farmers, pay Class S PRSI. Payment of PRSI allows you to build up entitlements to social insurance benefits, such as the state contributory pension, maternity benefit, paternity benefit and widow/widower contributory pension.

Self-employed people aged between 16 and 66 pay Class S PRSI of 4% on all income for tax purposes, that is, gross income less allowable expenses. You must pay 4% of all your income or €500, whichever is greater.

If you earn less than €5,000 from self-employment in a year you are exempt from PRSI, but you may pay €500 as a voluntary contributor if you meet the other conditions – details are available here.

Class S contributions only cover you for a limited number of payments. In general they do not cover you for any short-term payments including illness and disability payments. They do not cover you for Jobseeker’s Benefit.

If you satisfy all other conditions, Class S contributions can entitle you to:

• Widow’s, Widower’s or Surviving Civil Partner’s (Contributory) Pension
• State Pension (Contributory)
• Maternity  Benefit
  
• Paternity Benefit 

The Department of Social Protection has published a leaflet PRSI for the Self-Employed – SW74.

From 2014 ‘assisting spouses’ are eligible to make PRSI contributions and, thereby, to accrue PRSI benefits –  Read about employing family members

Income derived from leasing land on a long-term lease may be exempt from tax up to certain thresholds. Leases between close relatives do not qualify and to qualify a lease of farm land must be in writing or evidenced in writing and for a definite term of 5 years or more. The IFA Master Land Lease meets the necessary criteria.

Leases entered into on or after January 1, 2015

With effect from 1 January 2015 the age restriction and the requirement to be permanently incapacitated were removed, the amount of income that may be exempted under a qualifying long term lease was increased and a fourth threshold introduced for lease periods of 15 or more years with income of up to €40,000 being exempted.

• €40,000 where all the qualifying leases are for 15 years or more,
• €30,000 where all the qualifying leases are for 10 but less than 15 years,
• €22,500 where all the qualifying leases are for 7 but less than 10 years, and
• €18,000 where all the qualifying leases are for 5 or 6 years.

Qualifying lease taken out from 1 January 2007 to 31 December 2014

For periods up to 31 December 2014 an individual aged 40 years or over, or an individual who is permanently incapacitated by mental or physical infirmity from carrying on a trade of farming, may be entitled to an exemption from income tax of certain income arising from leasing of farm land.
The amount of the relief, (subject to the maximum limit) is allowed as follows:

• €20,000 where the lease / leases are for a term of at least 10 years
• €15,000 where the lease/ leases are for a term of at least 7 years
• €12,000 of annual leasing income where the lease/leases are for a term of at least 5 years

For more information see the Revenue website

The Succession Farm Partnership Scheme effectively gives a farmer and their successor a tax incentive where the farmer and successor enter an approved partnership which culminates in the transfer of at least 80% of the farm assets to the successor.

The scheme provides for an annual tax credit worth up to €5,000 per annum for a five-year period.

The scheme is being administered through Teagasc.

What do we need to do to get the tax credit?

Firstly, those seeking to avail of the relief must be participants of a registered farm partnership, and must apply to be included on a register of succession farm partnerships.

In order to be registered on the register of succession farm partnerships, a registered farm partnership must have at least two members.

At least one of the members (the farmer), must have been farming for at least two years prior to commencement of partnership, farming at least three hectares of usable farm land.

The second member (the successor) must have an appropriate qualification in agriculture, or a qualification of equivalence as determined by Teagasc, and under the terms of the farm partnership, the member must hold an entitlement to at least 20% of the profits of the partnership and be under 40 years of age.

In advance of approval, a business plan must be submitted by the farmer, the farmer shall enter an agreement with one or more than one of the successors to transfer or sell at least 80% of the farm assets to the successor, or successors, within a period of three to 10 years after the date that the succession farm partnership application is made.

At the outset, the plan must specify:

1. the farm assets of the farm partnership on the day that the application is made;
2. any conditions to which the transfer or sale will be subject;
3. the year in which the proposed transfer may take place; and,
4. any other terms agreed between the farmer and successor, or successors, including in relation to the farm assets, the conduct of the farming trade, or the creation of any rights of residence in dwellings on the farm land.

How does the tax credit work and how much is it worth?

The tax credit available is worth up to €5,000 per annum, split in line with the profit sharing ratio.

The credit is reduced where the profits of the partnership are below this level.

The tax credit is available in any year where the successor is aged 40 or under.

What happens if circumstances change or we withdraw from the plan?

If either party chooses to withdraw from the plan, the tax credits claimed by all parties are repayable.

What are the first steps we need to take?

There is a significant commitment to entering into a Registered Farm Partnership so all parties should consider it very carefully. These include an agreement to transfer 80% of the farm within a 10 year period, and other administrative arrangements such as a joint bank account for the partnership, a signed partnership agreement, a business plan for the partnership.

As a first step, you should read Teagasc Documentation on the scheme and contact Teagasc for further advice.

Because farm incomes can fluctuate year to year, IFA has negotiated an income averaging system for tax liability. Income averaging is a mechanism that allows farmers to opt to average their tax liability over a period of time.

Instead of being charged to tax on their farming profits in the normal way – on the profits of a 12-month period ending in the year of assessment – individual, full-time farmers may elect to be charged on the basis of the average of the aggregate farming profits and losses over a period. This period was 3 years up until budget 2015 and is extended to 5 years since January 1, 2015.

In Budget 2017, an IFA proposal allowing farmers to opt out of averaging in an exceptional year was introduced. This measure applies from the 2016 tax year and allows farmers on income averaging, in a very poor income year, to pay only the tax due on that current year.  The deferred tax liability will be payable over subsequent years.

Farmers who, or whose spouses, carry on another trade or profession or who are directors of companies which carry on a trade or profession cannot elect for income averaging unless that trade is in relation to on-farm diversification and conducted on the farmland.

For full information see www.revenue.ie

Capital Acquisitions Tax comprises Gift Tax, Inheritance Tax and Discretionary Trust Tax. The standard rate of tax is 33%.

Agricultural relief

CAT Agricultural relief at 90% is available in respect of agricultural property gifted to or inherited by active farmers and to individuals who are not active farmers but who lease out the property on a long-term basis for agricultural use to active farmers. In effect, this means that in such circumstances the market value is reduced by 90% for tax calculation purposes.

Tax-free thresholds for Capital Acquisitions Tax

For the purpose of Gift and Inheritance Tax, the relationship between the person who provided the gift or inheritance and the person who received the gift or inheritance determines the maximum tax free threshold – known as the “group threshold”. Find full details of allowable thresholds here.

Capital Gains Tax (CGT) is chargeable on gains arising on the disposal of assets, i.e. the tax is applied to the gain in value of the asset from the time you took ownership of it and the market value of the asset when you dispose of it. For farmers certain reliefs may apply.

Retirement Relief from Capital Gains Tax

Retirement Relief from Capital Gains Tax (CGT) is available where an individual, who is at least 55 years of age (with some exceptions such as chronic ill-health) disposes, by way of sale or gift, of the whole or part of his/her qualifying assets. The amount of retirement relief from CGT available is dependent on whether qualifying assets transferred are parent-to-child transfers or transfers other than to a child

Transfers to a child

Full relief may apply to farmers who are over 55 years of age and who owned the land and farmed the land/assets for 10 years prior to disposal. From January 1st 2014, where the current holder is aged over 66 there is a limit of €3m on the total value of the asset transferred on which the full CGT Retirement relief can be gained (i.e. if the value of the asset is less than €3m and if the current holder is over 66 then there will be CGT on the balance above €3m).

The relief is clawed back where the child disposes of an asset within 6 years of the date of acquisition from his/her parent. For parent to child transfer, a child can include a child of a deceased child. Foster child or nephew/niece transfers may also qualify in certain circumstances provided further specific qualifying criteria are met.

Transfers other than to a child

From 1st January 2014 where the disposal consideration does not exceed €750,000, relief from CGT is given in respect of the full amount of tax chargeable on the disposal in the case of an individual aged 55 – 65 years of age. The amount of full relief for individuals aged 66 years or more has been reduced from €750,000 to €500,000. Where the consideration exceeds the thresholds set out above, marginal relief applies so as to limit the amount of tax chargeable to 50% of the difference between the amount of the disposal consideration and €750,000/€500,000 thresholds.

The relief available is a lifetime amount, i.e. not per sale.

Conacre disposal

Changes introduced in Budget 2015 give farmers who let their land on conacre and who ultimately dispose of their land to a person other than a child a once off opportunity to avail of CGT retirement relief, provided they satisfy the other requirements of the relief, where they either:

• Dispose of their land on or before 31 December 2016, or
• Lease their land on or before 31 December 2016 for a minimum period of 5 years (up to a maximum of 25 years) and ultimately dispose of the land.

Restructuring relief

A CGT relief for farm restructuring was introduced in Budget 2013 and initially only permitted the purchase and disposal of outlying parcels from the main farm hub as qualifying transactions. To be eligible for the relief, the sale and purchase of qualifying land(s) must occur within 24 months of each other with the initial sale or purchase of qualifying land taking place in the period 1 January 2013 – December 2019.

Changes announced in Budget 2015 allowed for whole farm replacement, i.e. the disposal of an entire smaller or fragmented farm holding and replacement with a larger or more efficient farm holding. Relief is only available to claimants who are issued with a Farm Restructuring Certificate by Teagasc.

Relief for Transfer of a Site from Parent to Child

An exemption from CGT is available for the disposal of a site from a parent to a child where the transfer is to enable the child to construct a principal private residence on the site. The market value of the site must not exceed €500,000. The area of the site (exclusive of the area on which the house is to be built) must not exceed 0.4 ha or 1 acre. If the child subsequently disposes of the site without having occupied a principal private residence on the site for at least 3 years, then the capital gain which would have accrued to the parent on the initial transfer will accrue to the child in addition to his/her own gain. However, a gain will not accrue to the child where he or she transfers an interest in the site to a spouse or civil partner. This measure is available to both farmers and non-farmers.

There is no obligation on farmers to register for VAT.  In order to compensate for VAT paid on supplies by non-VAT registered farmers, such a farmer is entitled to a flat-rate addition of 5.4% to the prices at which their agricultural produce or agricultural services are supplied to VAT-registered persons including marts, agricultural co-operatives and meat factories.

Unregistered farmers are also entitled to reclaim VAT incurred on capital expenditure on buildings and on land improvements and certain fixed plant items.

Stamp duty on commercial property, including farmland, is charged at 6%, effective from the 11th October 2017. There are certain Stamp Duty reliefs and exemptions qualifying transactions may avail of set out below.

Stamp Duty – consanguinity relief for family transfers 

Conveyances or transfers of agricultural property between certain blood relatives may be eligible for consanguinity relief. This relief means Stamp Duty on such transactions is charged at 1% of the consideration. This relief is available until end 2020.

For full details click here

Stamp Duty – Young Trained Farmer relief

Stamp duty relief for young trained farmers provides for a total exemption from stamp duty on either the transfer, or purchase, of land where the recipient is a trained farmer under the age of 35 and meets other criteria.

For full details click here

Stamp Duty – Consolidation Relief

Stamp Duty Relief for farm consolidation will apply from August 1st 2018. This allows for a 1% rate of stamp duty where the land transactions qualify for a “Farm Restructuring Certificate” for the purposes of Capital Gains Tax Relief on Farm Restructuring. It will apply in relation to instruments conveying or transferring agricultural land that are executed on or after 1 January 2018 and on or before 31 December 2020. Where there is a purchase and sale of land within 24 months of each other that satisfy the conditions of consolidation, then stamp duty will only be paid to the extent that the value of the land that is purchased exceeds the value of the land that is sold. In addition both the purchase and sale must occur between 1 January 2018 and 31 December 2020. In such a situation stamp duty will only apply at the rate of 1% on the excess. The main conditions for the relief are:

• There must be a valid consolidation certificate issued by Teagasc in relation to the purchase and sale of land, occurring within 24 months of each other.
• The purchaser or purchasers must retain ownership of the land for a period of five years.
• The conveyance must contain a certificate stating that the purchaser is entitled to the relief
• A clawback of the relief will apply where the land or part of the land purchased is disposed of or partly disposed of before the end of the 5 year holding period. Such a clawback will not occur where the land purchased is compulsorily acquired.

This relief may only be applied for after August 1st 2018, but will apply in relation to all transactions that meet the criteria undertaken from January 1st 2018. This means that if the 6% stamp duty rate was paid on a transaction that meets the criteria and was undertaken after January 1st 2018, a reimbursement can be applied.

Stamp Duty – long term land lease exemption 

In Budget 2015, it was announced that there would be an exemption from stamp duty for leases of 6 years or more. This exemption was held up pending EU State Aid approval but is due to commence on July 1st 2018.

Stock relief is available only to farming trades and is a relief given in respect of increases in the value of farm trading stock. It is calculated by reference to the increase in value of the stock between the beginning and end of an accounting period.

The relief takes the form of a deduction, to be allowed in computing the trading profits of an accounting period, of 25 per cent of the amount of the increase in value of trading stock at the end of the accounting period.

Income, including grants and premiums, from forestry carried out in the State which is managed on a commercial basis is exempt from income tax but not from PRSI or Universal Social Charge.

The Basic Payment Scheme (BPS) commenced in 2015, it is no longer a single payment (the SPS expired 31/12/14) but may be a combination of payments under four separate schemes.  The elements are:

• The Basic Payment Scheme (BPS)
• The Greening Payment
• The Young Farmer Scheme
• The Voluntary Coupled Support Scheme (Protein Crops)

The Revenue Commissioner Guide to Basic Payment Entitlements addresses the taxation treatment of the payments.