A tractor is one of the most important pieces of machinery on any family farm.
But what does the tractor represent? Is it a status symbol or a sign of posterity? It is a necessity but does a farmer need a bright, shiny new one, the latest model with all the joystick controls, or will a good secondhand one with low working hours fit the bill?
I believe it’s a mixture of all of the above but finance and cashflow also need to be considered.
Analysis from the Farm Tractor and Machinery Trade Association (FTMTA) reports show that, despite the challenges of 2020, tractor sales in Ireland decreased by only 3%, from 1,968 to 1,910. The first three months of 2020 showed identical figures to 2019, but manufacturing was particularly affected during the lockdown months of April and May, and these months showed a decline. Sales improved in July through to year end. The highest numbers of new tractors for 2020 were registered in counties: Cork (262), Tipperary and Wexford (130 each), while Monaghan had just 13 new tractor sales. Higher-horsepower tractors is a trend that is continuing.
Imported secondhand tractors decreased from 3,045 (2019) to 3,010 in 2020. Registrations of secondhand imported tractors in December 2020 exceeded the past six years with 387 units. This may have been incited by the post-Brexit effect, and the risk of lack of supply of used tractors.
Most popular brands
The most popular brands in Ireland are John Deere, Massey Ferguson, New Holland and Case IH. Lesser popular brands are Claas, Valtra, Deutz Fahr, Landini and Zetor.
There are many farm finance options to help purchase your new or used tractor. You can apply for a term loan from your local bank, a Credit Union loan, or a leasing or hire purchase contract from various agricultural finance companies.
Generally tractors are financed by asset finance – there are various types:
1 Hire purchase (HP) – the VAT is calculated at the start of the agreement, and the repayments are fixed over the term, such as 48 payments of €1,000 per month. You can claim capital allowances on a HP agreement as you are treated as the owner from the start, for tax purposes. The lender can repossess the tractor if the terms and conditions of the HP agreement is not fulfilled – if you have repaid more than one third of the purchase price, the lender will need to obtain a court order to repossess. The interest rate is fixed at the start and you own the tractor once the last payment is made.
2 Finance lease – this is similar to HP, the repayments are fixed over the term but you will not own the tractor – ownership remains with the lessor. VAT is payable on each lease payment, rather than the full VAT being calculated at the outset with a HP contract. You will be able to offset the full lease repayments against any taxable profits. You basically have use of the tractor until the end of the agreement, whereby you have an option to either buy out the tractor or enter into a secondary lease. The end of the lease will trigger a clawback of tax relief equivalent to the deemed market value of the tractor at that time. Entering into a secondary lease period will defer this, but generally at a cost.
3 Operating lease – with an operating lease you do not repay the full value of the tractor over the rental period. You are basically, paying rent for the use of the tractor. Your repayments will be lower with a fixed interest rate. At the end of the rental period you will return the tractor to the finance supplier. Like finance leasing, VAT is payable on each rental payment, rather than at the outset. You cannot claim capital allowances but you can offset the rental payments against any taxable profit.
Dear Money Mentor,
I own a very old tractor which I intend to sell privately for parts, it is no longer worth repairing. I would like to buy a good second hand one, perhaps a New Holland one less than 7 years old. I have been in contact with many used tractors suppliers and have searched DoneDeal for options. Is there any way I can check out the history of a used tractor? What would you consider the average interest cost of leasing or HP currently, I find it difficult to compare the real cost of loans.
Livestock farmer in Co Carlow.
There are a number of websites, such as motorcheck.ie that you can use to check out and obtain information on the history of a second hand tractor. You can find out if there is any finance owing, if the tractor has ever been written off, the current mileage, if ever stolen and a previous usage check. A full enquiry, in total, will cost about €35 online.
With regard to interest rates for leasing and HP, you can pay anything between 5-8%, over a term of three to seven years. This market is very competitive. Repayment terms quoted on lease of HP agreements can vary significantly. Always check with your accountant before accepting any quotes to ensure there are no hidden costs included in the finance agreement, such as loan insurance, end of lease buy-out or balloon payments (a balance due at end of finance agreement).
Often, new tractor finance can attract a 0% interest rate as these rates are subsidised by the manufacturers.
Good luck with finding a good secondhand tractor.