Because every farmer is different, there’s no catch-all solution for saving on tax. However, there’s a long list of tax-saving tips that can reduce taxable income. Farmers should use every available tip because over-looked tax deductions are wasted opportunities.

From reducing your income tax, to ensuring you qualify for inheritance tax and capital gains tax relief, this Focus supplement is a must-read for all farmers.

Use it to work out which tips are applicable to you, and how to take advantage of them.

Thanks to Declan McEvoy, head of tax with ifac for his contributions to compiling this definitive list of the 50 best tax deductions and tips for 2019.

Stamp duty and land

Stamp duty is a tax charged on the transfer of property. In general, the only factor affecting the amount of stamp duty charged is the value of the property/land. The transfer of livestock, machinery and basic payment entitlements are not subject to stamp duty. The rate of stamp duty applicable to residential property is 1% on the first €1m, and 2% on the excess over €1m. Stamp duty on non-residential property is 6%.

1. Blood relative relief

Stamp duty relief has been enhanced so that any transfer of farm assets between blood relatives is subject to 1% stamp duty instead of the new 6%. Age restrictions on this relief have been removed. Other conditions still remain and should be reviewed before any transfers takes place.

2. Young trained farmer relief

This exemption from stamp duty is to encourage the transfer of farmland to a new generation of farmers with relevant qualifications. The transfer may be by way of a gift or sale. It applies where the young trained farmer is under 35 at date of the transfer.

Young trained farmers must have the relevant agricultural qualifications or must acquire the qualifications within four years from the date of execution of the transfer instrument.

The young trained farmer must spend 50% of their time farming the land to qualify.

The exemption is extended to 31 December 2021 but with onerous conditions from 1 January 2019 including the relief is aggregated with young trained farmers stock relief and in total the maximum relief is limited to €70,000. In addition it is limited to a start up / transfer and a business plan must be submitted.

Value-added tax (VAT)

Farmers and farming companies do not have to register for VAT, irrespective of turnover. Farmers are entitled to apply a flat-rate addition of VAT (5.4%) to their prices when supplying agricultural produce or services to VAT-registered customers. Flat-rate farmers are also entitled to reclaim VAT on certain capital expenditure.

3. Capital expenditure VAT refund

Farmers who are not registered for VAT can get a refund on the VAT element of any invoices relating to capital expenditure, for example land improvement, yards, fencing, drainage or buildings and fixed equipment, such as milking parlours, scrapers, bulk tanks, etc (repairs are not covered). You can claim VAT back on items purchased in the last four years.

4. Flat rate VAT refund

Ensure that you are being paid at the rate of 5.4% on all sales from 1 January 2019 if you are unregistered.

5. VAT on farm sale

If you are unregistered for VAT and selling your farm – or a portion of your farm – where you completed buildings within five years of the VAT reclaim, you will be liable for VAT on the sale.

6. For VAT registered farmers

If you are registered for VAT, you do not collect flat-rate VAT. Inform your customers that you are registered for VAT and keep copies of all invoices for your VAT return. Ensure you reclaim VAT on purchases of stock from unregistered farmers. VAT on livestock is 4.8% when you are VAT-registered.

7. VAT on sale of basic payment entitlements

Where a farmer sells basic payment or single farm payment entitlements, and the proceeds exceed €37,500, the transaction is liable to VAT at 23%. The seller needs to register and charge the VAT and pay over to Revenue the VAT charged. Farmers who purchase entitlements are not entitled to reclaim the VAT unless they are VAT-registered.

8. Contracting and other farm services

Farmers who carry on agricultural services and/or contracting where the turnover exceeds €37,500 must register for VAT. This can bring the whole business into the VAT net, but proper tax planning can help to avoid this.

9. Ceasing to farm VAT refund

VAT reclaimed in the 12 months prior to ceasing is re-payable to Revenue so it is important to watch the date you cease.

Capital gains tax

If a farmer disposes of certain assets such as land, buildings, quota, shares, or entitlements, he or she may be liable to capital gains tax. The farmer must file a return for any 2018 gains or losses by the return filing date in 2019. Preliminary tax for capital gains tax is due as follows: disposals up to 30 November 2018 due by 15 December 2018. Disposals in December 2018, tax due 31 January 2019. Capital gains tax applies on all disposals whether or not consideration (money) passes. The rate is at 33%. With this in mind, availability of reliefs is paramount to minimising the tax.

10. Annual exemption

An annual exemption of €1,270 applies. Therefore you can make a gain of €1,270 and no tax applies. It is not transferable from one spouse to the other. Transfers between husband and wife are not liable to capital gains tax and losses sustained by one spouse are transferable to the other spouse.

11. Transfer of site to a child

A site of up to one acre and up to a value of €500,000 can be made free from capital gains tax. It must be for the construction of the son or daughter’s principal private residence. If the house is not built and the site is disposed of or the house is not built, the relief can be clawed back. Beware of the value of the site as this will reduce the threshold for gift tax.

12. Entrepreneur relief

Entrepreneur relief reduces the standard rate of capital gains tax from 33% to 10% for qualifying gains. The value of this relief can be up to €230,000. You can claim entrepreneur relief if you sell all or part of a farm business. It applies on gains up to €1m. Entrepreneur relief does not apply to investments or development land.

13. Retirement relief

This relief is available to farmers over the age of 55. The farmer does not need to be retired to avail of it. The farmer must have owned and farmed the land for 10 consecutive years prior to transfer or prior to entering into a letting/leasing agreement. There are two main versions. Within the family, farmers can transfer/dispose of chargeable business assets. Provided certain conditions are met, no capital gains tax will apply. If you are over 66, a limit of €3m applies. For non-family transfers, or transfers to unrelated parties, a farmer can transfer/dispose of assets up to €750,000 and have no liability. If you are over 66, the limit is reduced to €500,000.

14. Disposal to company

No capital gains tax applies where you dispose of all your businesses and all assets to a company. However, conditions apply and need to be looked at on an individual basis.

15. Restructuring relief

If you acquire and dispose of agricultural land within 18 months of the earlier transaction, a capital gains tax relief applies. The sale, purchase, swap must be between farmers who spend not less than 50% of their time farming.

16. Losses

If you are disposing of assets, examine if you have unused losses, ask have you assets that are of less value than when you acquired them. Could you dispose of these to generate a loss?

17. Small disposals

Small disposals of an asset where the value does not exceed €2,500 are exempt from capital gains tax.

18. Transfers between spouses

While exempt from capital gains tax, beware of the effect transfers between spouses may have on retirement relief.

19. Disposal of a business or farm to your child

You may dispose of all or part of your business or farming assets to your child. If you do, you may be entitled to relief from CGT. The amount of relief that you can claim depends on your age at the time of disposal. You may claim full relief if you are between 55 and 65. If you are 66 or older the relief is restricted to €3m. If your child disposes of the asset within six years, Revenue will withdraw the relief. Your child must pay CGT on the original disposal by you, in addition to the CGT on their own disposal.

Gift tax

Gift tax applies to a lifetime transfer. Inheritance tax applies to a transfer on death. Where the valuation date is between 1 January and 31 August, the CAT payment date is 31 October in that year. Where the valuation date is between 1 September and 31 January, the CAT payment date is 31 October in the following year. The thresholds that a person can receive tax-free (on or after 10 October 2018) are as follows:

20. Annual exempt amount

A farmer can receive by way of a gift an amount of €3,000 from any person in a calendar year without affecting his or her threshold. No gift or inheritance tax applies between spouses.

21. Certain medical expenses

A gift or inheritance taken exclusively to discharge medical expenses of a permanently incapacitated individual is exempt.

22. Stately houses/works of art/gardens

If you own a property of national, scientific or artistic interest and reasonable access is given to the public during the three years prior to the gift or inheritance, tax relief may apply.

23. Agricultural relief

This relief reduces the value of the asset you are receiving by 90%. If you receive €2m of agricultural property you will only be taxed on €200,000, ie 10% of its value. Ensure you meet the conditions to qualify for this relief. Beware clawback of the relief if you fail to satisfy the conditions. The recipient must qualify as an active farmer to receive this relief.

24. Business relief

If you do not qualify for agricultural relief, business relief may be available. It applies to the transfer of a business or part of a business. It does not apply to an individual asset. It reduces the value of the asset by 90%.

25. Favourite nephew-niece relief

In certain circumstances, a nephew or niece who has worked on a full-time basis on the farm will be deemed to qualify as your child for the purpose of CAT. If they qualify they can avail of the CAT Group A threshold.

26. Free use of property

If you have the use of property for free or below market value, be aware that this amount is regarded as an annual benefit and could erode some or all of the amount you can get tax-free.

Income tax

27. Tax credits

Ensure you are availing of all the credits you are entitled to. These reduce the amount of tax that would otherwise be payable. The table gives details of the main personal tax credits for the tax years 2018 and 2019.

28. Local property tax

Ensure you have paid your local property tax so that you do not incur a surcharge on your income tax liability.

29. Medical expenses

Tax relief is available on non-recoverable medical expenses incurred by the taxpayer, spouse and children. Certain items are not allowed. This relief is confined to the 20% rate. You can only claim for expenses that you have receipts for. You can claim relief on the last four years’ health expenses.

30. Add backs for motor/web/telephone

If you spend money on something that is for both business and private use, you can claim a deduction for part of the expense. This includes items such as phone bills and motor expenses.

31. Family wages

Are your family working on the farm? Where a family member is full-time employed on the farm, they are entitled to the employee tax credit. They can only claim this if they earn a sufficient farm wage that incurs a tax liability. For 2019, this tax credit is €1,650. Therefore, if a single person is an employee with no other earnings, they can earn up to €16,500 before incurring any tax. Furthermore, a child living at home can earn €8,250 with no tax, PRSI or USC. The child must make a commercial contribution to the farm, must be registered as an employee and an annual employer return must be made. Please ensure all wage payments to family and non family comply with the new PAYE modernisation rules.

32. Spousal earnings

If both partners are earning, ensure you are availing of the dual-income tax benefit. A dual-income couple can earn substantially more at the low-rate than a single-income couple. However, there may be situations where couples wish to be treated partially or entitled separately for tax purposes. Make sure you choose the method which is best suited to you — joint assessment, separate assessment, single assessment. Under joint assessment, the tax credits and standard cut-off points can be allocated between partners to suit. A married person with a non-earning spouse can earn maximum of €44,300 at the 20% rate whereas a couple in partnership can earn up to €70,600.

33. Paying a wage to your spouse

If you do not create a partnership with your spouse, it could be equally beneficial to pay your spouse a wage. This would extend the 20% tax band. Usually, farming spouses are involved in the running of the farm and can justify the wage.

34. Stock relief

Stock relief takes the form of a deduction from farming profits. There are currently three bands of stock relief available. In any accounting year, a farmer is allowed to reduce his/her trading stock by 25% of the increase in value against profits. When it comes to disposing of this stock, there is no claw-back position. He/she will only be taxed on the amount by which the sale proceeds exceed the actual value that had been placed on those stock for tax purposes. Stock relief is available at 50% for registered partnerships. There is also 100% relief for young trained farmers. Budget 2019 extended all three stock reliefs for a further three years until the end of 2021. Stock relief is very beneficial for farmers who are expanding as the relief is never clawed back. It is important to note that stock relief cannot be claimed to create or increase a loss.

35. Income averaging

Review the use of income averaging. Is it still beneficial? If you opt out you must review the previous four years. You must stay off averaging for four/five years after opting off so consider the effect of an increase in profits.

36 Succession tax credit

This incentive takes the form of an income tax credit of €5,000 for up to five years, allocated on a profit sharing ratio between a qualifying farmer and his or her successor. You must agree to enter into a registered farm partnership and then transfer to a registered succession partnership to avail of the credit.

37. Capital allowances

When farm machinery, tractors, cars, vans and farm buildings are purchased, they are not treated as deductible expenses in the normal way. Instead, their cost is allowed over a number of years. For plant and machinery, it must be written off over eight years at 12.5% per year. Farm buildings and land improvement can be written off over seven years at a rate of 15% for the first six years and 10% in the seventh year. Cars are given a capital allowance based on their emission category (if first registered on or after 1 July 2008). A car in emission categories A,B or C can avail of capital allowances of 12.5% per annum up to a cost of €24,000 – even if the car cost more. Cars in higher emission categories have reduced allowances.

38. Milk quota

Have you claimed the balancing charge on quota on the ceasing of quotas? Time is running out to make the claim if not already done.

39. Forestry

If a farmer has forestry, or is in a forestry partnership, all profits from this—including the premiums and timber sales—are not liable to income tax. However, they are liable to PRSI and USC. If a grant is received for planning, it is not liable for tax.

40. Energy-efficient equipment

This scheme aims to encourage farms to invest in energy-saving equipment. Farmers who use the scheme are allowed to write off 100% of the purchase value of qualifying energy-efficient equipment against profit in the year of purchase. The equipment must meet the specified energy criteria and be designed to achieve high levels of energy efficiency. They include, electric motors and drives, lighting equipment and systems, building energy management systems, electric and alternative fuel vehicles and equipment, refrigerating and cooling equipment and systems, etc. A full list of the qualifying equipment is available on the SEAI website.

41. Land leasing

If a farmer (of any age) decides to lease his/her land for a period of five years or more, some or all of that income may be exempt from income tax. If the lease is for 15 years or more, up to €40,000 can be earned tax-free.

If it is for 10 years or more, but less than 15 years, it is €30,000 tax-free. For seven years or more but less than 10 years, it is €22,500 tax-free; for five years or more, but less than seven years, it is €18,000 tax-free.

If you have older leases would a review and update of the lease be worthwhile to avail of the higher allowances? A qualifying lessee cannot be the lessor’s immediate family (eg grandparents, parents, brothers, sisters, children, and grandchildren), the spouse of the lessor or the immediate family of the spouse.

There are some other limitations also. Nieces or nephews qualify as eligible lessees. Where lands are jointly held, eg husband and wife, both parties can claim the exempted amount – ie up to €80,000 can be exempt.

42. Investing in personal pensions

Could making a pension contribution reduce your income tax liability? Contribution towards a personal pension are fully tax allowable, subject to certain limits. On maturity, your tax liability will depend on what you decide to do with your fund. If you opt for a straightforward annuity (and assuming you take your 25% tax free lump sum) you will be liable for income tax and USC at the normal rates on the balance of the fund.

43. Covenant

A farmer, who may be a higher-rate taxpayer, could save on his/her tax bill by giving money to support a family member through a deed of covenant. To avail of this, the person to whom you give or covenant money must be 65 or over or be permanently incapacitated. You can then claim tax relief on an amount of up to 5% of your taxable income. There is no limit if the person is permanently incapacitated.

44. Rent a room relief

Could you rent a room in your house and avail of tax-free income? The rent a room relief entitles a homeowner to earn up to €14,000 rent in a year, which is not subject to any tax. The room must be rented out from the principal primary residence. A son or daughter cannot avail of this scheme.

45. Home renovation scheme

Where planning permission was in place by 31 December 2018, you can claim a tax credit for home renovation work carried out and paid for up to 31 March 2019. The tax credit is 13.5% on a spend of up to €30,000. This is only available where all taxes are up to date and you use a registered contractor who has charged VAT at the relevant rate.

Corporation tax

Where a farmer has changed to a company structure, the following is important to note:

  • Ensure you lodge your corporation tax return on time as a late return can result in penalties and loss of reliefs.
  • Ensure the company pays you a salary. This will enable you to get benefits paid for you by the company such as health insurance, life insurance and club subscriptions. The benefit will be taxed on you as salary but will be taxed as a cost to the company.
  • If you take out the funds yourself and pay it yourself it will cost you more in tax.
  • 46. Family wages

    You can pay wages to your family if they are involved in the business. Ensure you are paying the correct rate of PRSI.

    47. Annual small benefit

    The company can pay you or any of its employees a one-off voucher of €500 each year tax- and PRSI-free.

    48. EIIS

    Can you raise funds to invest in your company and allow the investors avail of EIIS? This can provide finance to allow you to expand, purchase land, etc. Very strict rules and conditions apply but if the conditions are met, tax relief is available subject to annual and overall limits.

    49. Motor expenses

    Have you a private car? Review whether it is better to have a company car or to claim mileage. A company car, where the company pays all the cost, including replacement and running costs, may suit you.

    50. Rent of land to the company.

    Review the rental of land to the company. A payment of salary may be a better option.