Strong prices last year, particularly in the beef sector, mean that many farmers will have had larger incomes than they would be used to. This is particularly the case for part-time livestock farmers, who would often have little or no income from their holdings. They will now be facing Revenue bills that could be significantly higher than usual. Farm incomes may also be higher because of the increased popularity of low-input farming practices, such as organic farming. There has also been a reduction in on-farm spending in recent years, as many farmers – both full and part time – have had little need for further infrastructure spending, following the period of significant investment after the end of quotas.

For farmers with an off-farm income, or a spouse with an off-farm income who is using all of the joint tax credits, there is a risk that any income from the farm could be charged at the marginal rate, leading to significant tax bills. We’ll look at some of the ways farmers can manage their tax bills.

Measures to be aware of

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Stock relief allows farmers to claim a deduction in the increased value of livestock on the farm in any year. The standard level of relief is 25%, but this increases to 50% for a registered farm partnership and is 100% for qualifying young farmers.

Accelerated capital allowances cover investments in farm safety, such as fixed sheep-handling units, cattle crushes, calving gates and chemical storage cabinets, these can be written off over two years, rather than the standard seven to eight years.

The value which can be written off is net of any TAMS grant received. Slurry storage investments also qualify for the accelerated two-year capital allowance against tax bills.

Certain investments in qualifying energy efficient equipment can be fully written off against tax in the year of purchase. See the SEAI website for details of qualifying equipment.

One of the most tax efficient things a farmer can do in years where income is higher is to increase their personal pension contributions. See page 50 for more. Income averaging

Farmers can elect to have their incomes averaged over a five-year period. This has the advantage of reducing the volatility in the size of tax bills from year to year. It works by taking the aggregate farm profits or losses for the current tax year and the four previous years, and then dividing that number by five. The tax due is then calculated on that number. Farmers opting to use income averaging for calculating their tax liabilities are locked in for five years. There is, however, an option to opt out for one year in case of a particularly difficult year. If the opt-out is used, the farmer pays tax on that year’s income only and the opt-out year is disregarded for future rolling five-year income averages. The opt-out can be used once in any five-year period. The scheme is open to farmers operating as a sole trader or in a farm partnership. It is not available to corporate farming entities. Farmers can still avail of averaging if either they or their spouse or partner have an off-farm income. If a farmer decides to leave the arrangement, they may be subject to clawbacks if their profit in the final year of averaging is higher than the average over the previous four years.

Farm partnership

The introduction of the succession farm partnership was primarily driven by concerns over the pace of generational renewal in agriculture. The objective is to encourage the transfer of farm assets to the next generation in an efficient manner, while allowing the farmer to retain a stake in the business.

These succession farm partnerships have certain criteria, such as a commitment to transfer 80% of the farm assets to the successor by the 10th year of the partnership, but they also have considerable tax advantages.

An annual tax credit of €5,000 is available to succession farm partnerships, for a maximum of five years from the date of receipt of a valid application to the DAFM registration office, up until the year the successor is 40 years old. The tax credit is split between the partners in the same ratio as the profit-sharing ratio of the partnership. For example, a farmer enters a succession farm partnership with their child with a profit-sharing agreement of 60:40. In this case, the parent gets €3,000 of the tax credit and the successor gets €2,000.

The successor must be under 40 and have an appropriate agricultural qualification in order to access this tax credit. The farmer must qualify as an active farmer under Department of Agriculture rules. If the farmer is over 60 years old, then there are grants available to help with the legal and accountancy fees involved in setting up the partnership.

The partnership must be registered with the Department of Agriculture and have a farm partnership registration number (FPRN).

These arrangements also have the advantage of having earnings from the farm split between two people which means that there are two personal tax credits available to offset against tax liabilities.

Incorporation

For larger operations consistently earning substantial income, the option of moving from a sole trader to a company structure could prove efficient. This is especially the case where a farm business is expanding, or plans to expand, as it allows much more of the farm’s earnings to be retained in the business. The corporate tax rate, at 12.5% for most company income, is significantly below the level of income tax.

For smaller operations, incorporation is unlikely to make sense as there is considerably more expense and paperwork involved, including the publication of annual accounts.

Incorporation can be advantageous for a farmer planning to make a significant investment, such as the purchase of land, as loan repayments are made from retained income, which, due to the low corporate tax rates, will be larger than would be the case for a farmer acting as a sole trader. Seek independent advice on the advantages and disadvantages of incorporation, and whether it is the right long-term move for your farm business.

Finally, and while this is not necessarily tax advice that will benefit the farmer directly, it is very important to have an up-to-date will in place. If a farmer dies without a valid will in place, then their estate is distributed as per the rules set out in the Succession Act of 1965. Under this, the farm is divided among the late farmer’s relatives in accordance to pre-determined shares, with the farmer’s spouse entitled to the lion’s share and balance divided equally among any children.

If there are no relatives and there is no will in place, then the farm can become the property of the State, which would effectively be a 100% tax on the assets.

Comment

As with everything to do with tax and financial planning, everyone’s circumstances are different, so it is essential to get independent financial advice when planning your tax affairs.

Farm incomes have been extremely volatile, so it is important to be flexible in your tax planning. What worked in 2024 and 2025 may not be the most efficient solution for 2026.

It is also worth remembering to take advantage of general tax reliefs which are available, such as the 20% rate on medical, prescription and non-routine dental; rental relief; third-level fee relief and, in certain professions, flat-rate expenses allowances.

As with everything to do with taxes, it is important to keep all receipts and try to have up-to-date records on spending and earnings.

With taxes for 2025 not due to be paid until the autumn, it might seem that tax planning is something that can be ignored for now.

However, a plan put in place well ahead of the deadline will mean much less pressure when it comes to filing a return.

Your accountant will certainly thank you for not piling extra work on them at their busiest time of the year.