I am debating about leasing some of my land. While there is a lot of talk about the great rent that is being paid that you can get tax free, I am afraid that something will make me regret the decision. What types of things have you seen where people leased land and they got caught out down the line?
I know leasing land can offer steady, tax-efficient income, but I want to be prepared for the long-term implications. What are the key items which can put people off leasing?
ANSWER: This is a question being considered by many landowners at this time of the year. Some of the key items which can put people off leasing are as follows:
CAP Reform risk
There has been a lot of talk of armchair farmers and there is a real risk that for those that have leased out their entitlements currently, they will not be able to establish new entitlements under the next CAP. This is always a risk as one cannot predict what can happen with CAP Reform. That said, I would normally encourage landowners to agree to a rent without reference to entitlements.
For example, instead of a rent of €250 per acre plus entitlement value, agree €300 per acre base rent and let the tenant take the value of the entitlements. The value of entitlements were substantially reduced when BPS entitlements were replaced by BISS, CRISS and ECO payments.
Imagine the landowner had agreed a rent of €250 per acre plus entitlements worth €50 per acre and the entitlements were abolished in the CAP Reform due to happen sometime between 2028-2030, instead of a return of €300 per acre, the landowner is now down to €250 per acre. You could also include regular rent reviews in the lease so that you have an option to review the rent if the entitlements are lost.
Succession planning
Generally, the same tax reliefs that are available if you were farming the land are equally available if you are leasing the land for a minimum of a five year period.
The ones affected by a decision to lease are Retirement Relief from Capital Gains Tax and Favourite Nephew/Niece Relief and Business Relief as it relates to Capital Acquisitions Tax (gift/inheritance tax).
Retirement Relief/CGT
The issue to be mindful here is to have owned and farmed the land for a minimum of 10 years before you start leasing it. That way you can continue to avail of Capital Gains Tax (CGT) Retirement Relief if you wish to transfer the farm during your lifetime be that to a successor or a sale.
If you intend to sell, ensure that any lease is for at least five years. You can lease out the farm for up to 25 years and not affect the availability of Retirement Relief provided you owned and farmed it for 10 years prior to leasing.
Favourite Nephew/Niece Relief
Favourite Nephew/Niece Relief works so that a niece/nephew is regarded as a child from a gift/inheritance tax perspective. Currently, a child/favourite niece/nephew can get up to €400,000 tax free from a parent/uncle/aunt compared to €40,000 if they are a regular niece/nephew.
To get the relief they have to be helping the aunt/uncle on the farm for at least five years before the gift/inheritance.
Naturally if you lease the farm, you cease as a farmer and thus they cannot help you on the farm and cannot avail of the relief.
Business Relief
Business Relief from Capital Acquisitions Tax is generally availed of where a successor cannot avail of Agricultural Relief, ie – cannot pass the 80% asset Farmer Test. Business relief requires the successor to take over the farming business as a going concern.
Again, if you lease the farm, the farming trade is discontinued and thus the relief would not be available to a successor. It is only in limited circumstances that Favourite Nephew/Niece Relief and/or Business Relief may be required so it may not impact on your decision to lease.
Fair Deal/Nursing Home Care
If the landowner or their spouse needs nursing home care, 7.5% (3.75% in the case of a couple) of the value of the farm is taken into account for the Fair Deal. For example for a couple, if the farm and farmhouse was valued at €1.25m, you would have to pay €900 approximately towards the cost of your nursing home care per week.
A three-year cap applies to the house, and in certain circumstances to the farm. This means that the value of the house and farm are only taken into account for the first three years of nursing home care. However, if you have leased your farm, you cannot avail of the three year cap on the farm and it will continue to be taken into account as an asset for the Fair Deal, meaning you may pay more for your nursing home care.
Aisling Meehan, agricultural solicitors and tax consultants
Disclaimer: The information in this article is intended as a general guide only. While every care is taken to ensure accuracy of information contained in this article, Aisling Meehan, Agricultural Solicitors and Tax Consultants does not accept responsibility for errors or omissions howsoever arising. Email aisling@agrisolicitors.ie
I am debating about leasing some of my land. While there is a lot of talk about the great rent that is being paid that you can get tax free, I am afraid that something will make me regret the decision. What types of things have you seen where people leased land and they got caught out down the line?
I know leasing land can offer steady, tax-efficient income, but I want to be prepared for the long-term implications. What are the key items which can put people off leasing?
ANSWER: This is a question being considered by many landowners at this time of the year. Some of the key items which can put people off leasing are as follows:
CAP Reform risk
There has been a lot of talk of armchair farmers and there is a real risk that for those that have leased out their entitlements currently, they will not be able to establish new entitlements under the next CAP. This is always a risk as one cannot predict what can happen with CAP Reform. That said, I would normally encourage landowners to agree to a rent without reference to entitlements.
For example, instead of a rent of €250 per acre plus entitlement value, agree €300 per acre base rent and let the tenant take the value of the entitlements. The value of entitlements were substantially reduced when BPS entitlements were replaced by BISS, CRISS and ECO payments.
Imagine the landowner had agreed a rent of €250 per acre plus entitlements worth €50 per acre and the entitlements were abolished in the CAP Reform due to happen sometime between 2028-2030, instead of a return of €300 per acre, the landowner is now down to €250 per acre. You could also include regular rent reviews in the lease so that you have an option to review the rent if the entitlements are lost.
Succession planning
Generally, the same tax reliefs that are available if you were farming the land are equally available if you are leasing the land for a minimum of a five year period.
The ones affected by a decision to lease are Retirement Relief from Capital Gains Tax and Favourite Nephew/Niece Relief and Business Relief as it relates to Capital Acquisitions Tax (gift/inheritance tax).
Retirement Relief/CGT
The issue to be mindful here is to have owned and farmed the land for a minimum of 10 years before you start leasing it. That way you can continue to avail of Capital Gains Tax (CGT) Retirement Relief if you wish to transfer the farm during your lifetime be that to a successor or a sale.
If you intend to sell, ensure that any lease is for at least five years. You can lease out the farm for up to 25 years and not affect the availability of Retirement Relief provided you owned and farmed it for 10 years prior to leasing.
Favourite Nephew/Niece Relief
Favourite Nephew/Niece Relief works so that a niece/nephew is regarded as a child from a gift/inheritance tax perspective. Currently, a child/favourite niece/nephew can get up to €400,000 tax free from a parent/uncle/aunt compared to €40,000 if they are a regular niece/nephew.
To get the relief they have to be helping the aunt/uncle on the farm for at least five years before the gift/inheritance.
Naturally if you lease the farm, you cease as a farmer and thus they cannot help you on the farm and cannot avail of the relief.
Business Relief
Business Relief from Capital Acquisitions Tax is generally availed of where a successor cannot avail of Agricultural Relief, ie – cannot pass the 80% asset Farmer Test. Business relief requires the successor to take over the farming business as a going concern.
Again, if you lease the farm, the farming trade is discontinued and thus the relief would not be available to a successor. It is only in limited circumstances that Favourite Nephew/Niece Relief and/or Business Relief may be required so it may not impact on your decision to lease.
Fair Deal/Nursing Home Care
If the landowner or their spouse needs nursing home care, 7.5% (3.75% in the case of a couple) of the value of the farm is taken into account for the Fair Deal. For example for a couple, if the farm and farmhouse was valued at €1.25m, you would have to pay €900 approximately towards the cost of your nursing home care per week.
A three-year cap applies to the house, and in certain circumstances to the farm. This means that the value of the house and farm are only taken into account for the first three years of nursing home care. However, if you have leased your farm, you cannot avail of the three year cap on the farm and it will continue to be taken into account as an asset for the Fair Deal, meaning you may pay more for your nursing home care.
Aisling Meehan, agricultural solicitors and tax consultants
Disclaimer: The information in this article is intended as a general guide only. While every care is taken to ensure accuracy of information contained in this article, Aisling Meehan, Agricultural Solicitors and Tax Consultants does not accept responsibility for errors or omissions howsoever arising. Email aisling@agrisolicitors.ie
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