Farm Taxation – Will the Budget increase Farm Mobility?

By October 6, 2014News, Taxation

There were a number of provisions in the budget aimed at increasing farm mobility and utilisation in Ireland.

Many of the measures are targeted at making land available for leasing.

These include

  • a removal of the restriction that in order to avail of the income tax exemption one must be 40 or older;
  • An increase to €18k the amount one can receive tax free under a five year lease;
  • An increase to €22.5k the amount one can receive tax free under a seven year lease;
  • An increase to €30k the amount one can receive tax free under a ten year lease;
  • The introduction of an exemption of €40k the amount one can receive tax free under a fifteen year lease;
  • Relief will also now be allowed where the land is leased to an unconnected company
    Agricultural leases between 5 and 35 years will now be exempt from Stamp Duty

In addition land which has been let for 25 years prior to disposal will be eligible for retirement relief from capital gains tax on gains up to €750k for farmers under 66 and €500k on disposals by farmers who are 66 or older on disposals to third parties. This limit is €3m on disposals to family members.

This seems to be heavily targeting the New Zealand model for the dairy sector; in the beef sector conacre will likely continue. The reasonably low rental values combined with an innate fear of losing the land if leasing it under longer term leases leave conacre the preferred option.

While farmers can still benefit from the relief in non dairy sectors they are unlikely to achieve anything near the maximum tax free amounts at current land rental values.

Whether the abolition of milk quotas will result in a significantly different land rental market developing remains to be seen. I suspect that the innate emotional attachment to land, combined with a fear that somehow tenants can usurp landlord’s rights will trump the availability of tax free income.

Until 31 December 2016 land let under conacre, or land currently under conacre which is let under a 5-25 year lease before that date can be disposed of to non-family members until 31 December 2016 claiming retirement relief.

This encouragement to move away from conacre is again most likely to impact on dairy farms but this could be an incentive for older people to take the opportunity to actually sell their land realising a tax free gain.

On farm transfers consanguinity relief resulting in a 1% stamp duty rate, due to expire this December, has been retained for 3 more years where the transfer is 65 or older and the transferee is an active farmer.

Agricultural Relief from Capital Acquisitions Tax will be restricted unless the transferee is either actively farming the land, or who lease the land out on a long term basis to such active farmers.

The farmers’ flat rate allowance for VAT is to be increased to 5.2% providing additional welcome relief to farming families.

Capital Gains tax farm restructuring relief is being extended to situations where the first transaction takes place before 31 December 2016 and the final transaction by 31 December 2018. Teagasc guidelines are being amended to allow whole farm replacements be eligible.