Farmers are give special status because of the importance of their role to the Irish economy, as well as the normal tax issues that apply to all other tax payers, farmers have over the years managed to differentiate themselves from others by securing special treatment in many aspects of taxation, a summary of which we have outlined here-under.
The farmer opting for income averaging is charged to tax for a tax year on the average of the aggregate farming profits and losses (before deduction of capital allowances which are not subject to averaging) over 5 years, that is, of the tax year in question and the 4 tax years immediately preceding that year.
Reversion to normal basis of assessment
A farmer may elect to revert to the normal (current year) basis of assessment for a year of assessment provided that averaging has been used for the 5 immediately preceding tax years.
Re-electing for income averaging.
An individual who has opted out of the averaging regime may subsequently re-elect for income averaging, but only after his/her farming profits have been assessed on the normal basis under section 65(1) TCA for at least four years before re-electing.
Additional option to temporarily step out of averaging (Covid-19 measure)
To provide relief for farmers who are adversely impacted by the Covid-19 restrictions, an additional option to step-out of averaging is provided for the year of assessment 2020. This option is available to farmers who have already used their
option to temporarily step out of the regime.
To avail of this additional step-out option, the following conditions must be satisfied:
Capital allowances are granted for tax purposes in lieu of a deduction for depreciation and are available in respect of certain qualifying expenditure incurred in the provision of certain assets in use for the purposes of a trade or rental business. They effectively allow the write off of the cost of an asset over a period of time. Listed here are capital allowances that are specific to the primary agriculture sector.
Capital Allowance for Farm Buildings and Other Works
An allowance is available on the construction of farm buildings (excluding dwelling house), fences, farm roadways, holding yards, drains, land reclamation and other ancillary works such as walls, water and electrical installation as a relief against income tax over a seven year period for capital expenditure.
The rate of the farm buildings capital allowance is 15 per cent of the capital expenditure for each of the first 6 years of the 7 year period with the balancing 10 per cent, allowed in year 7.
Relief for Increase in Carbon Tax on Farm Diesel
An income tax deduction is allowed for computing the profits of a farming trade to offset the increased costs of green (agricultural) diesel used in that trade which are attributable to the increase in the rate of carbon tax from 1 May 2012.
Agricultural diesel used by a farmer in the course of a farming trade is a deductible cost as it is a legitimate business expense. As carbon tax is included in the cost of that diesel, a farmer obtains a deduction for the amount of the carbon tax incurred on the purchase of farm diesel. In addition to the deduction for the cost of farm diesel, farmers are entitled to a double deduction for the increased carbon tax they incur on farm diesel purchased after 1 May 2012. The current rate is €70.42 per 1,000 litres, up from €54.92 at 30th April 2020.
Agricultural contractors are not entitled to this relief as they are not carrying on a trade of farming.
Stock relief is a relief given on income tax in respect of increases in the value of a farm’s trading stock. It is calculated by reference to the increase in value of the trading 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.
Where stock relief is claimed the following general principles apply:
25% General Stock Relief on Income Tax
All farmers are allowed a relief on income tax of 25% on the increase in value of trading stock and work-in-progress at the end of the accounting period over and above the opening value. This long standing measure continues to be extended.
100% Stock Relief on Income Tax for Certain Young Trained Farmers
Young trained farmers who meet minimum academic and training requirement are allowed a relief on income tax of 100% of the increase in value of trading stock To be eligible for the 100% rate of relief the farmer must be less than 35 years of age before the commencement of the accounting year of tax assessment.
Young farmers in registered farm partnerships are eligible to claim the 100% stock relief. The enhanced 100% relief is available for up to four years to young farmers.
Instead of the general rate of 25% stock relief2 or the rate of 50% for farmers who are partners in registered farm partnerships, the enhanced 100% rate of relief applies for the tax year in which an individual becomes a young trained farmer and
for each of the three successive tax years in which there is an increase in stock value.
Enhanced 50% Stock Relief on Income Tax for Registered Farm Partnerships
All farmers are allowed a relief of 25% on the increase in value of trading stock at the end of the accounting period over and above the opening value.
However, in the case of a partner in a Registered Farm Partnership, for accounting periods ending after 1 January 2012 and ending before 31 December 2021, stock relief at the rate of 50% applies.
In the case of a partnership, the practice has been to deduct the stock relief due in arriving at the partnership profit. This practice will continue where all the partners come within the same stock relief regime. However, where, for example, some
partners in a partnership are entitled to 100% stock relief while others are entitled to the general 25% relief, it may be accepted that the partnership profit to be allocated in accordance with the profit sharing ratios is the profit before stock relief but after
making all other adjustments.
Special Treatment of Profits from Compulsory Disposal of Livestock
A special treatment is available in respect of profits arising from the disposal of livestock due to statutory disease eradication measures. Two types of relief are provided for; income averaging and stock relief.
Income Averaging for Compulsory Disposal of Livestock
Under the income averaging provisions for compulsory disposal of livestock the farmer may elect to:
(a) Have the profits excluded from their taxable income in the assessment year in which the disposal arises and to have the profits taxed in four equal installments in each of the four following assessment years; (or)
(b) Have the profit treated as arising in equal installments in the assessment year in which the disposal actually arose, and the following three assessment years
Stock relief for Compulsory Disposal of livestock
Where the receipts from the disposal of livestock are reinvested in livestock, the farmer may elect to claim stock relief equal to the difference between the amount of compensation received and the opening stock value of the stock disposed of. This figure is called the “excess”. There is a four year reinvestment period and provided the full proceeds of the compulsory disposal i.e. compensation and sales proceeds, are reinvested within the four years then 100% of the “excess” may be claimed by way of stock relief. Where the full proceeds are not reinvested the stock relief is then reduced proportionately.
Income from woodlands managed on a commercial basis and with a view to the realisation of profits is tax exempt.
The question arises as to whether or not certain activities involving forestry fall within the tax exemptions.
This is a long standing relief, designed to encourage longer term leases of farm land. The lease must have a minimum definite term of five years or more to qualify for relief. There have been a number of modifications to this measure since it was introduced initially in 1985. Currently the lessor is exempt from income tax on progressively increasing amounts linked to lease duration as follows:
• 5 – 7 year leases up to €12,000 per annum
• 7 – 10 years leases up to €15,000 per annum
• Over 10 years leases up to €20,000 per annum
Budget 2015 the increased the income thresholds for relief from leasing income by 50%.
Currently the lessor is exempt from income tax on progressively increasing amounts linked to lease duration; these amounts will now be increased by 50%, as follows:
5 to 7 year leases; up to €18,000 per annum
7 to 10 year leases; up to €22,500 per annum
Over 10 year leases; up to €30,000 per annum.
A fourth threshold for lease periods of 15 or more years with an exemption for the first €40,000 per annum.
To make repayments affordable, expanding, younger and new entrant farmers require longer-term loans. Generally, loan terms cannot exceed the land-lease term. This new threshold should increase the availability of land in this category and therefore allow for longer-term loans.
For land jointly owned each individual is entitled to a separate maximum reduction of the appropriate amounts listed above against their respective share of the rent from a qualifying lease.
A lessor is eligible for the relief if;
A qualifying lessee is an individual who is not connected with the lessor. Effectively this means that a lessor is not entitled to relief where the land is let to family members. Companies are not a qualifying lessee for the relief.
Since 1 January 2005 lease income can include income from land and standard Single Farm Payment entitlements (note: entitlements are attached to the Herd Number not the land), thus leasing land, the landowner/lessor may negotiate a value into the lease in return for also leasing out the existing entitlements to the farmer/lessee.
Budget 2015 removed the lower age threshold of 40 years of age for eligibility for the long-term leasing tax relief.
There is currently a lower age threshold of 40 years of age for eligibility of land owners for the long-term leasing tax relief. In some instances, land owners under this age have inherited farms and proceed to lease land under short-term conacre arrangements or, with little experience or knowledge in farming, proceed to farm it in an unproductive and inefficient manner.
Budget 2015 now allow non-connected limited companies as an eligible lessee for the long-term leasing tax relief.
There is a trend towards the incorporation of farms, i.e. some farmers are changing the structure of their businesses from self-employed sole traders to limited companies.
A tax saving may be achieved by the payment of wages to family members. A single individual can earn €8,250 free of income tax and the payment is an allowable deduction from the taxable profit of the farm. It is therefore tax free in the hands of the person who receives it, while it is an allowable deduction from farming profits at the farmer's marginal rate of tax.
In order to ensure that the deduction will be allowed:
Where a farmer disposes of property such as land, buildings, assets of a business and company shares, the disposal of which is not liable to Income Tax, another tax may be payable if there is a gain called Capital Gains Tax which is payable by the person who disposes of the property.
CGT Relief and Exemptions/Retirement Relief/Transfer of land
If a farmer was to transfer his farm without receiving a cent in return, he could be liable to pay capital gains tax.
There is however an important relief to assist transfers within the family called Retirement Relief.
In order to avail of this relief the farmer:
• Must be aged 55 years or more at date of disposal
• Disposing of "qualifying assets"
• Owned by him/her for the "qualifying period"
Exception to 55 year age rule
Revenue will consider claims for Retirement Relief where a farmer of 54 years ceases farming due to severe or chronic ill health.
A "qualifying asset", which includes farmland, is an asset which was owned for a continuous period of 10 years ending with the transfer and was also used by the individual for their farming trade for the same continuous 10 year period. For transfers made on or after 1st January 2005 the EU Single Farm Payment Entitlement will qualify provided the farmer fulfills the 10 year rule in relation to the ownership and usage of the land, which is disposed of at the same time as the entitlement. There are five exceptions to the 10-year use provision where the transfer relates to the following situations:
1. EU Early Retirement Scheme
2. Compulsory Purchase
3. Land let for less than 15 years
4. Transfer of land from child to parent
5. Transfers between spouses
If the transfer relates to any of the five above you should seek professional advice concerning the conditions necessary to avail of Capital Gains Tax Retirement Relief.
Clawback of Relief
If the recipient of the land disposes of it within 6 years of the transfer the Capital Gains Tax relieved is clawed back.
Retirement Relief/Farmers aged 66 years and over:
1. Application of Retirement Relief on sales up to €750,000
This particular relief is part of "Retirement Relief" and is available regardless of whether or not the farmer retires. This means that qualifying farmers over 55 years who sell sites or parts of their farm will be free from capital gains tax on cumulative disposal amounts up to €750,000 and this relief can be subsequently clawed back if the €750,000 ceiling is exceeded in the future. The conditions attaching to this relief are similar to those outlined in the case of a transfer within the family. However, Exception 3 "land let for less than 15 years" only applies in respect of a disposal to a child. Where the disposal proceeds exceed €500,000 there is marginal relief.
Important points to be aware of:
1. The €750,000 ceiling refers to the sales proceeds and not the gain.
2. The €750,000 ceiling refers to the cumulative sales proceeds of assets used in the trade since the farmer attained 55 years of age which can result in a previous disposal which was otherwise exempt becoming taxable.
An upper limit of €3m on Retirement Relief for business and farming assets disposed of within the family is proposed where the individual transferring the assets is aged 66 years or over. Full retirement relief from capital gains tax for intra-family transfers was be maintained for individuals aged 55 to 66. The current unlimited amount applies for the transitional period of 2 years from 6th December 2011 for individuals currently aged 66 or who reach that age before 31st December 2013. The €750,000 ceiling for assets transferred/sold outside the family for individuals aged between 55 and 66 will be maintained but the upper limit will be reduced to €500,000 for individuals aged over 66 years. The upper limit of €750,000 applied for a transitional period of 2 years from the 6th December 2011 for individuals aged 66 or who reach that age before 31st December 2013.
Section 59 Finance Act 2012 provides that the relief for disposals of business or agricultural assets outside the family by individuals aged 66 or over on or after 1 January 2014 will be reduced to €500,000.
Transfer of site to child
No liability to capital gains tax arises on the transfer of a site to a son/daughter subject to the following conditions:
• It is for the construction of the son/daughter's principal private residence
• The area of the site does not exceed 1 acre, plus the footprint of the house
• The market value of the site does not exceed €500,000
• When built, the house is occupied for a minimum period of 3 years prior to sale
• A parent can only transfer one site to each child for this exemption
If the site is disposed of without constructing the house or before it was occupied by the son/daughter for 3 years prior to sale, the capital gains tax relief is clawed back.
Budget 2015 retain Retirement Relief from Capital Gains Tax at current levels.
Although not exclusive to the agriculture sector, this is widely used measure in the farming sector and essential to allow for inter-generational transfers.
For transfers under Retirement Relief, extend the eligible letting period of a qualifying asset to 25 years.
Currently the following are qualifying assets for Retirement Relief from Capital Gains Tax:
land which was let at any time during the 15 year period prior to its disposal but, prior to its first letting, was farmed for 10 years by the individual making the disposal and the disposal is to a child of the individual concerned’ and ‘land leased for a minimum period of 5 years up to a maximum of 15 years ending with the disposal but, prior to its first letting, was farmed for 10 years by the individual making the disposal and the disposal is to a person other than a child of the individual concerned’.
The letting period prior to disposal should be extended to 25 years to allow for family situations where successors are too young to take over a farming business and to promote the productive use of land.
The 10 year usage condition would still apply.
For transfers other than to a child under Retirement Relief, as a once-off measure until the end of 2016, allow conacre lettings as eligible.
a) For transfers to an individual other than a child, a qualifying asset can include leased land, but only land let on a long-term basis, i.e. conacre does not qualify. To give those who have been using conacre a window of opportunity to dispose of land and avail of this relief, as a once-off measure until the end of 2016, land let on a conacre arrangement will be eligible.
b) Also, for those who switch to long-term leasing during the period to the end of 2016, their previous conacre arrangements be disregarded for the purposes of the relief.
The 10 year usage condition will still apply. There are many farmers who are effectively caught in conacre arrangements without exit options, therefore this is a once-off opportunity for them to either retire or move to long-term leasing.
Retain CGT relief on farm restructuring, allow whole-farm replacement and extend the measure to the end of 2016.
CGT relief for farm restructuring was introduced in Budget 2013. However, whole-farm replacement was precluded from this relief, i.e. the disposal of an entire smaller or fragmented farm holding and replacement with a larger or more efficient farm holding.
Under Budget 2015 the measure is being extended to whole-farm replacement. As the logistics of restructuring can take a significant amount of time, it is proposed to extend the measure to the end of 2016. This measure will be subject to advance certification, which will be based on objective criteria to reduce land fragmentation across an individual holding.
Capital Gains Tax Relief for Woodlands
The CGT relief for woodlands applies where woodlands are being disposed of. The consideration for the disposal of trees growing on the land is not included in calculating the chargeable gain nor are insurance proceeds received on foot of destruction of or damage or injury to trees by fire or other hazard on such land. The relief applies to individuals only
Farm Restructuring Relief
You may claim relief from CGT if you dispose of farmland for farm restructuring purposes.
The purpose of farm restructuring is to make your farm more efficient (improve the operation and viability of the farm). You can do this by selling and purchasing or exchanging parcels of land to bring them closer together. A parcel of land is an entire agricultural field or group of fields used for farming purposes.
The relief provides:
You might also qualify for relief on stamp duty on the purchase of the new parcel of land.
How to qualify for the relief.
The first sale or purchase must occur between 1 January 2013 and 31 December 2022. The next sale or purchase must occur within 24 months of the first.
You may also be able to claim relief where you exchanged land with another person.
Where a farmer (as defined) receives agricultural property (as defined) the market value of the agricultural property may be reduced by 90%.
Capital Acquisitions /Inheritance Tax
Where a farmer (as defined) receives agricultural property (as defined) the market value of the agricultural property may be reduced by 90%.
What is Agricultural Relief?
Agricultural Relief has been available for gift and inheritance tax since the introduction of Capital Acquisitions Tax in 1976 The relief operates by reducing the market value of 'agricultural property' by 90%, so that gift or inheritance tax is calculated on an amount - known as the 'agricultural value' - which is substantially less than the market value. In general, the relief applies provided the beneficiary qualifies as a 'farmer'.
Definition of Agricultural Property
For Gifts and Inheritances taken on or after 20th November, 2008 'Agricultural property' means:
• agricultural land, pasture and woodland situated in a Member State of the EU;
• crops, trees and underwood growing thereon;
• houses and other farm buildings appropriate to the property; and
• livestock, bloodstock and farm machinery thereon.
• A payment entitlement (within the meaning of Council Regulation.
For Gifts and Inheritances taken prior to 20th November, 2008 the definition of Agricultural Property included land, pasture and woodland situated in the State only.
To Qualify for the relief the gift or inheritance must consist of agricultural property both at the date of the gift or inheritance and at the Valuation Date.
The Valuation Date is the date at which the property is valued for gift/ inheritance tax purposes.
Exceptionally, however, the relief is applicable to the whole or part of a gift or inheritance notwithstanding that that whole or part did not strictly consist of agricultural property until after the date of the gift or inheritance:
Eligibility for Business Relief
Agricultural assets not qualifying for agricultural relief may qualify for business relief.
Definition of a Farmer for Agricultural Relief purposes
To qualify for agricultural relief, the person receiving the gift or inheritance must be a 'farmer' at the Valuation Date.
For the purposes of the relief, a 'farmer' means: an individual in respect of whom at least 80% of his or her assets, after taking a gift or inheritance, consist of agricultural property on the valuation date of the gift or the inheritance.
The '80%' test does not apply in the case of agricultural property consisting of trees and underwood.
The separate amounts of consideration for all such disposals over the lifetime of the individual are aggregated and up to a threshold of €750,000 aggregate (€500,000 for disposals between 6 February 2003 and 31 December 2006), gains accruing from the disposal of qualifying assets are fully relieved.
Stamp Duty is a duty or tax on documents and not on transactions or persons. If a transaction or transfer can be carried out legally without the use of a written document, then there is nothing to stamp and therefore no charge to Stamp Duty. The most common event giving rise to a Stamp Duty charge for a farmer is the transfer of land and buildings. The transfer of livestock, machinery and assets can be transferred by delivery rather than written agreement and therefore should not be subject to Stamp Duty.
Transfers on Death
If a person transfers their property during their lifetime, the transfer is liable to Stamp Duty, but if transferred on death, no stamp duty is payable.
Husband and Wife Exempt
Transfers between a husband and wife married to each other are exempt from Stamp Duty.
Stamp Duty Rate on Land Transfers
Different rates apply to the transfer of residential property and this involves valuing the residence separately.
Transfer of Farmland from Child to Parent
Stamp Duty Relief exists in respect of transfers of farmland from a child to a parent as consideration for land transferring from the parents to the child where the Capital Gains Tax Retirement Relief ownership and use provisions have been met.
Relief on transfers to young trained farmers
To claim this relief, you must:
The relief is an EU State Aid. This places restrictions on the amount of relief that may be claimed. These restrictions apply to instruments executed on or after 1 January 2019.
Stamp duty relief for young trained farmers provides for a total exemption from stamp duty (currently 7.5%) on either the transfer by gift, or purchase, of farmland where the recipient is a trained farmer under the age of 35 and meets the above specified criteria.
The relief under Stamp Duty for young trained farmers will continue until December 31, of 2022.
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