The specifics of the Budget were well and comprehensively reported in last week’s Irish Farmers Journal.
This article is not meant to be a blow-by-blow account of what the Minister announced; rather, it will highlight areas where tax-planning and action could save you money.
Some of the action points relate to provisions in previous budgets and where deadlines have not been extended in Budget 2014.
INCOME TAX
DIRT Increased
The Deposit Interest Retention Tax (DIRT) has been increased from 33% to 41%. This is a dramatic increase and given that deposit interest is also subject to 4% PRSI in most cases, the return on deposit accounts is becoming wholly unattractive. A taxpayer aged 65 years, or more, may claim repayment of the DIRT where they are not liable or fully liable for income tax.
Tax planning action
If under 65 years of age investigate alternative investment products. If 65/66 in the tax year, you are exempt from 4% PRSI and DIRT may be refundable.
Stock Relief
In last year’s budget speech, the Minister proposed broadening the definition of ‘registered farm partnerships’ so that partnerships other than Milk Production Partnerships could avail of a special 50% stock relief. This provision was subject to the signing of a commencement order by the Minister for Finance. This has not yet been signed. It is expected an announcement will be made in November/December.
Tax planning action
Be prepared. Are you in a position to form a partnership? If so, monitor the start date of this relief. Keep up to date through the Irish Farmers Journal or visit www.ifac.ie
Home Renovation Incentive
This incentive will apply to expenditure by an individual on the renovation or improvement of their principle private residence.
The tax write-off is 13.5% of the cost of the renovation work and will be granted by way of a tax credit split over two years starting in the year following the year of the expenditure.
There is a minimum threshold spend of €5,000 and a maximum threshold of €30,000 over two years.
The building contractor carrying out the work must be tax registered and compliant.
Tax planning action
If planning to carry out renovations or improvement to your main private residence, postpone it until after 31 December 2013 to avail of the tax credit.
Pensions
Payments to your pension fund will remain tax deductible at your marginal rate of tax, subject to the existing rules. With effect from January 2014, tax relief will only be available on pension contributions up to the level that provides an annual income of up to €60,000 and, so, there will be a reduction in the standard fund threshold to €2m from 1 January 2014.
Tax planning action
If the capitalised value of your pension exceeds €2m, you should formally apply for a personal fund threshold in excess of €2m. Contact your pension adviser immediately.
High Earners’ Restriction and EIIS/BES
There is a limit to the amount of certain tax reliefs that can be used by taxpayers earning in excess of €125,000 per year. One of those restricted reliefs is the Employment Incentive Investment Scheme (EIIS), i.e. the old Business Expansion Scheme (BES).
The 30% annual tax credit attaching to EIIS is being removed from the high earners’ restriction for three years.
Tax planning action
For those taxpayers earning in excess of €125,000 per year, for 2014, 2015 and 2016, EIIS will be more attractive to you.
Extension of the Living City Initiative
Introduced in 2013 for Waterford and Limerick, it is now being extended to Cork, Galway, Kilkenny and Dublin. This relief will apply to specified residential and commercial properties where expenditure on their refurbishment can be written off against other taxable income. The tax write-off in respect of the designated commercial premises is 15% per annum for six years and 10% in year seven.
Tax planning action
Available from tax year 2014, any income tax relief is valuable but should also be assessed on its credibility as an investment.
Setting up your own Business
For persons who have been unemployed for at least 15 months prior to starting their own unincorporated business, they will be exempt from income tax for two years.
The maximum exemption from income tax is €40,000 per year. This relief is subject to EU approval and we await to see if farming is included as a designated new trading activity.
Tax planning action
Keep up to date on these developments in the Irish Farmers Journal or visit www.ifac.ie
VALUE ADDED TAX
Flat Rate Addition
From 1 January 2014, the flat rate addition, which compensates non-VAT-registered farmers for VAT incurred, will be increased from 4.8% to 5%.
Tax planning action
Run the figures and see if the new 5% vat refund compensates you for the vat on your inputs, bearing in mind that you can receive vat refunds on fixed capital expenditure without having to register for vat.
Cash Receipts Basis Threshold
If you are a VAT-registered farmer, it is advantageous to return your VAT on a cash receipts basis rather than on your invoiced sales.
The cash receipts basis threshold will increase from €1.25m to €2m with effect from 1 May 2014.
Tax planning action
If you are vat registered and your turnover is likely to be in excess of €1.25m, avail of the cash receipts basis with effect from 1 May 2014.
VAT clawback on unpaid invoices
The budget proposes that businesses which have not paid for supplies, in full or part, within a six-month period will be required to repay the vat claimed on those supplies.
CAPITAL GAINS TAX
Capital Gains Tax Holiday Extended
Last year’s budget introduced a seven-year Capital Gains Tax holiday on property purchased between 6 December 2011 and 31 December 2013.
This year’s Budget proposes extending the deadline to 31 December 2014.
Tax planning action
This Capital Gains Tax holiday applies to land, buildings and property in the State and runs out on 31 December 2014. If you can identify assets which will appreciate over time, availing of this incentive may be worthwhile.
Lands held in Joint Tenancy
The breaking of a joint tenancy is subject to Capital Gains Tax (except tenancies with spouses) and a Capital Gains Tax relief is available to partnerships on the breaking of joint tenancies. However, the relief expires on 31 December next.
Tax planning action
If you are farming in partnership and lands are jointly owned with someone other than your spouse, act immediately.
Farmers approaching or over 66 years of age
Last year’s budget introduced a restriction to apply from 31 December 2013 onwards for farmers aged over 66 selling or transferring property.
Non-Family Sales and Transfers
The €750,000 Capital Gains Tax Retirement Relief which applies to the sale or transfer of land, etc, to non-family members, will be reduced to €500,000 for transfers occurring after 31 December by farmers aged over 66 years.
Intra-Family Land Sales and Transfers
There is no ceiling on the Capital Gains Tax retirement relief for qualifying intra-family sales and transfers.
Last year’s budget introduced a €3m ceiling on the CGT intra-family retirement relief in respect of transfers/sales after 31 December 2013 by farmers over 66 years of age.
Tax planning action
If you are approaching 66 years of age, immediately re-examine your plans for what you intend doing in respect of land sales and/or transfers.
CGT Farm Restructuring/Consolidation Relief
Introduced in last year’s budget, this is a relief from Capital Gains Tax for farmers who sell land to fund the purchase of another piece of land as part of their individual farm restructuring/consolidation plan.
The relief also applies to land swaps.
There is a qualifying time period as follows:
The initial sale or purchase transaction must occur within the period from 1 January 2013 to 31 December 2015, and,The sale and purchase of the land parcels must occur within 24 months of each other.Tax planning action
If you plan to carry out farm restructuring, build this important relief into your plan.
NON-FAMILY TRANSFERS
The budget proposes extending Capital Gains Tax retirement relief to include farmers who lease their land out on a long-term basis (a minimum lease of five years) in the period prior to retirement where that land is being transferred to a person other than their child. This change will enable a farmer to avail of income tax exemption on long-term leases without infringing CGT retirement relief provisions.
Tax planning action
If you intend transferring your farm to someone other than one of your own children (if any), talk to your tax adviser to maximise both income and capital tax reliefs.
Entrepreneurial Relief
This relief is being introduced subject to EU State Aid approval and will apply where an individual makes an investment in the period from 1 January 2014 to 31 December 2018 in assets to be used in a new productive trading activity.
We must await the Finance Act to determine the nature of any farming activities which may qualify for this relief.
Tax planning action
Keep up to date on these developments in the Irish Farmers Journal or visit www.ifac.ie
INHERITANCE TAX
Rate of Tax and Thresholds
The gift and inheritance tax rates remain unaltered at 33% and the tax-free amounts which a person may receive are also unaltered. However, these thresholds have been reduced by as much as 60% since January 2009.
Tax planning action
As reported in the Irish Farmers Journal’s property section, land prices continue to increase against the backdrop of a 60% reduction in the capital tax exempt amounts since January 2009.
Review your will with your solicitor and your accountant. Wills drawn up three years ago are now outdated for the purposes of tax planning.The 60% reduction in the tax exempt amounts make existing capital tax reliefs all the more valuable. It is imperative you arrange your affairs and that of your successor to avail of these reliefs.
The specifics of the Budget were well and comprehensively reported in last week’s Irish Farmers Journal.
This article is not meant to be a blow-by-blow account of what the Minister announced; rather, it will highlight areas where tax-planning and action could save you money.
Some of the action points relate to provisions in previous budgets and where deadlines have not been extended in Budget 2014.
INCOME TAX
DIRT Increased
The Deposit Interest Retention Tax (DIRT) has been increased from 33% to 41%. This is a dramatic increase and given that deposit interest is also subject to 4% PRSI in most cases, the return on deposit accounts is becoming wholly unattractive. A taxpayer aged 65 years, or more, may claim repayment of the DIRT where they are not liable or fully liable for income tax.
Tax planning action
If under 65 years of age investigate alternative investment products. If 65/66 in the tax year, you are exempt from 4% PRSI and DIRT may be refundable.
Stock Relief
In last year’s budget speech, the Minister proposed broadening the definition of ‘registered farm partnerships’ so that partnerships other than Milk Production Partnerships could avail of a special 50% stock relief. This provision was subject to the signing of a commencement order by the Minister for Finance. This has not yet been signed. It is expected an announcement will be made in November/December.
Tax planning action
Be prepared. Are you in a position to form a partnership? If so, monitor the start date of this relief. Keep up to date through the Irish Farmers Journal or visit www.ifac.ie
Home Renovation Incentive
This incentive will apply to expenditure by an individual on the renovation or improvement of their principle private residence.
The tax write-off is 13.5% of the cost of the renovation work and will be granted by way of a tax credit split over two years starting in the year following the year of the expenditure.
There is a minimum threshold spend of €5,000 and a maximum threshold of €30,000 over two years.
The building contractor carrying out the work must be tax registered and compliant.
Tax planning action
If planning to carry out renovations or improvement to your main private residence, postpone it until after 31 December 2013 to avail of the tax credit.
Pensions
Payments to your pension fund will remain tax deductible at your marginal rate of tax, subject to the existing rules. With effect from January 2014, tax relief will only be available on pension contributions up to the level that provides an annual income of up to €60,000 and, so, there will be a reduction in the standard fund threshold to €2m from 1 January 2014.
Tax planning action
If the capitalised value of your pension exceeds €2m, you should formally apply for a personal fund threshold in excess of €2m. Contact your pension adviser immediately.
High Earners’ Restriction and EIIS/BES
There is a limit to the amount of certain tax reliefs that can be used by taxpayers earning in excess of €125,000 per year. One of those restricted reliefs is the Employment Incentive Investment Scheme (EIIS), i.e. the old Business Expansion Scheme (BES).
The 30% annual tax credit attaching to EIIS is being removed from the high earners’ restriction for three years.
Tax planning action
For those taxpayers earning in excess of €125,000 per year, for 2014, 2015 and 2016, EIIS will be more attractive to you.
Extension of the Living City Initiative
Introduced in 2013 for Waterford and Limerick, it is now being extended to Cork, Galway, Kilkenny and Dublin. This relief will apply to specified residential and commercial properties where expenditure on their refurbishment can be written off against other taxable income. The tax write-off in respect of the designated commercial premises is 15% per annum for six years and 10% in year seven.
Tax planning action
Available from tax year 2014, any income tax relief is valuable but should also be assessed on its credibility as an investment.
Setting up your own Business
For persons who have been unemployed for at least 15 months prior to starting their own unincorporated business, they will be exempt from income tax for two years.
The maximum exemption from income tax is €40,000 per year. This relief is subject to EU approval and we await to see if farming is included as a designated new trading activity.
Tax planning action
Keep up to date on these developments in the Irish Farmers Journal or visit www.ifac.ie
VALUE ADDED TAX
Flat Rate Addition
From 1 January 2014, the flat rate addition, which compensates non-VAT-registered farmers for VAT incurred, will be increased from 4.8% to 5%.
Tax planning action
Run the figures and see if the new 5% vat refund compensates you for the vat on your inputs, bearing in mind that you can receive vat refunds on fixed capital expenditure without having to register for vat.
Cash Receipts Basis Threshold
If you are a VAT-registered farmer, it is advantageous to return your VAT on a cash receipts basis rather than on your invoiced sales.
The cash receipts basis threshold will increase from €1.25m to €2m with effect from 1 May 2014.
Tax planning action
If you are vat registered and your turnover is likely to be in excess of €1.25m, avail of the cash receipts basis with effect from 1 May 2014.
VAT clawback on unpaid invoices
The budget proposes that businesses which have not paid for supplies, in full or part, within a six-month period will be required to repay the vat claimed on those supplies.
CAPITAL GAINS TAX
Capital Gains Tax Holiday Extended
Last year’s budget introduced a seven-year Capital Gains Tax holiday on property purchased between 6 December 2011 and 31 December 2013.
This year’s Budget proposes extending the deadline to 31 December 2014.
Tax planning action
This Capital Gains Tax holiday applies to land, buildings and property in the State and runs out on 31 December 2014. If you can identify assets which will appreciate over time, availing of this incentive may be worthwhile.
Lands held in Joint Tenancy
The breaking of a joint tenancy is subject to Capital Gains Tax (except tenancies with spouses) and a Capital Gains Tax relief is available to partnerships on the breaking of joint tenancies. However, the relief expires on 31 December next.
Tax planning action
If you are farming in partnership and lands are jointly owned with someone other than your spouse, act immediately.
Farmers approaching or over 66 years of age
Last year’s budget introduced a restriction to apply from 31 December 2013 onwards for farmers aged over 66 selling or transferring property.
Non-Family Sales and Transfers
The €750,000 Capital Gains Tax Retirement Relief which applies to the sale or transfer of land, etc, to non-family members, will be reduced to €500,000 for transfers occurring after 31 December by farmers aged over 66 years.
Intra-Family Land Sales and Transfers
There is no ceiling on the Capital Gains Tax retirement relief for qualifying intra-family sales and transfers.
Last year’s budget introduced a €3m ceiling on the CGT intra-family retirement relief in respect of transfers/sales after 31 December 2013 by farmers over 66 years of age.
Tax planning action
If you are approaching 66 years of age, immediately re-examine your plans for what you intend doing in respect of land sales and/or transfers.
CGT Farm Restructuring/Consolidation Relief
Introduced in last year’s budget, this is a relief from Capital Gains Tax for farmers who sell land to fund the purchase of another piece of land as part of their individual farm restructuring/consolidation plan.
The relief also applies to land swaps.
There is a qualifying time period as follows:
The initial sale or purchase transaction must occur within the period from 1 January 2013 to 31 December 2015, and,The sale and purchase of the land parcels must occur within 24 months of each other.Tax planning action
If you plan to carry out farm restructuring, build this important relief into your plan.
NON-FAMILY TRANSFERS
The budget proposes extending Capital Gains Tax retirement relief to include farmers who lease their land out on a long-term basis (a minimum lease of five years) in the period prior to retirement where that land is being transferred to a person other than their child. This change will enable a farmer to avail of income tax exemption on long-term leases without infringing CGT retirement relief provisions.
Tax planning action
If you intend transferring your farm to someone other than one of your own children (if any), talk to your tax adviser to maximise both income and capital tax reliefs.
Entrepreneurial Relief
This relief is being introduced subject to EU State Aid approval and will apply where an individual makes an investment in the period from 1 January 2014 to 31 December 2018 in assets to be used in a new productive trading activity.
We must await the Finance Act to determine the nature of any farming activities which may qualify for this relief.
Tax planning action
Keep up to date on these developments in the Irish Farmers Journal or visit www.ifac.ie
INHERITANCE TAX
Rate of Tax and Thresholds
The gift and inheritance tax rates remain unaltered at 33% and the tax-free amounts which a person may receive are also unaltered. However, these thresholds have been reduced by as much as 60% since January 2009.
Tax planning action
As reported in the Irish Farmers Journal’s property section, land prices continue to increase against the backdrop of a 60% reduction in the capital tax exempt amounts since January 2009.
Review your will with your solicitor and your accountant. Wills drawn up three years ago are now outdated for the purposes of tax planning.The 60% reduction in the tax exempt amounts make existing capital tax reliefs all the more valuable. It is imperative you arrange your affairs and that of your successor to avail of these reliefs. 
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