There have been a number of changes to land-related taxes in recent years and this continued in the 2014 budget. These may have repercussions for people who already have their will drafted and also may have implications for individuals. The changes are mainly directed at ensuring that income and capital tax reliefs apply where land is being transferred to bona fide active farmers.
This article covers issues which the following categories of landowners and farmers should be aware of:
1. Persons receiving a gift or inheritance of farmland.2. Landowners aged 67 and over, disposing of farmland after 31 December 2015.3. Landowners aged 66 and over, disposing of farmland today.4. Landowners letting land to other farmers.5. Farmers planning to consolidate their holdings.6. Landowners who own zoned land.1. Persons receiving a gift or
inheritance of farmland
There are a number of very valuable tax reliefs available on the transfer of the family farm. However, due to recent changes, it is now more difficult to qualify for them. Consider the impact of not qualifying for agricultural relief on the transfer of 100 acres to a child, together with buildings, plant and machinery and livestock with a total value of €1.5m.
Therefore, there is a potential tax bill of €420,000 on the transfer of a 100-acre farm where the 90% relief is not available.
The qualifying conditions for the 90% agriculture value relief deduction have been changed with effect from 1 January 2015. It is now more difficult to qualify for this relief.
In addition to satisfying the existing value test, the recipient must also:
a. Farm the land on a commercial basis for six years, for not less than 50% of his/her normal working time. b. Or, be a young, trained farmer (satisfying certain agricultural training qualification conditions) and farm the land on a commercial basis for six years. c. Or, lease the land for a period of six years or more to someone who satisfies the conditions of either (a) or (b) above.The normal working time test
The Revenue Commissioners have stated that they will accept, for the purposes of this relief, that “normal working time” (including on-farm and off-farm working time) approximates to 40 hours/week.
This is to enable farmers with off-farm employment to qualify for the relief, provided they spend a minimum of 20 hours working per week averaged over a year on the farm.
If a farmer can show that his/her normal working time is somewhat less than 40 hours/week, then the 50% requirement will be applied to the actual hours worked – subject to being able to show that the farm is farmed on a commercial basis with a view to the realisation of profits.
Withdrawal of relief
Agricultural relief is subject to withdrawal if the agricultural property is disposed of within six years of the date the inheritance or gift was received and the proceeds of the disposal are not reinvested into other qualifying agricultural property. In relation to gifts and inheritances received on or after 1 January 2015, the relief is also subject to withdrawal if within a period of six years from the valuation date, any of the qualifying conditions (see above) governing the relief are not satisfied.
Tax planning action 1
It is now more difficult to qualify for and retain the agricultural relief. Review your will and succession plans now.
Landowners aged 67 and
over, disposing of farmland
after 31 December 2015.
There is a 50% stamp duty reduction on transfers between related persons of non-residential property carried out on or before 31 December 2017. Between 1 January 2015 and 31 December 2015, a transfer by a person of any age can qualify for the relief. However, after that date, and until 31 December 2017, only a transfer by a person under 67 years of age can qualify for the relief. The person to whom the land is transferred must:
1. Farm the land or lease it for a period of not less than six years to an individual who farms the land.2. The person who farms the land must have an agricultural qualification of the kind necessary to qualify for the young trained farmer stamp duty relief, or farm the land for no less than 50% of his/her normal working time.3. The land must be farmed on a commercial basis and with a view to realisation of profits. The relief is subject to withdrawal if any of the conditions cease to be satisfied during the six-year period.
2: Review your succession plan – for farmers aged 67 years and over, the relief ceases on 31 December next and for all other farmers on 31 December 2017.
3. Landowners aged 66 and over, disposing of farmland today
While examining your stamp duty position and your succession plan, you should also consider previous capital gains tax (CGT) budget changes penalising farmers over 66 years of age as follows:
Reduced relief on sales or transfers to non-family members – the €750,000 CGT retirement relief which applies to the sale or transfer of land, sites, etc, to non-family members is reduced to €500,000 for transfers by farmers aged 66 and over.Intra-family transfer relief was capped – the availability of CGT retirement relief on intra-family land sales and transfers by farmers aged 66 and over is capped at €3m.Tax planning action 3: If you are approaching 66 years of age, be aware of the age restrictions on availing of capital gains tax retirement relief.
4. Landowners letting land
to other farmers
Income tax relief for leased land has significantly increased. Up to, and including, the 2014 tax year, a person aged 40 years or over, or permanently incapacitated, could lease their farmland for a period of five years or more and avail of an income tax exemption.
From 1 January 2015, the lower age qualifying threshold of 40 has been removed and the tax exempt amounts qualifying have been increased (see table 2).
Where the lease includes land and direct payment entitlements, the rental income attributable to the direct payment entitlements also qualifies for the relief subject to the appropriate ceiling.
The conditions applying are:
The lease must be based on a formal lease document.The land must be leased to individual/s who are unconnected with the lessor and who use the land for the purposes of farming. A company may be an eligible lessee, provided it is not connected to the lessor.Both husband and wife owning leased land jointly can avail of the relief individually.Conacre income versus leasing income
Income and capital tax changes, together with stamp duty modifications, brought in by the 2014 Finance Act all combine to giving special favourable tax status to income from long leases of land at the expense of conacre (11-month lease). There is no significance in whether rental income is declared as earned as opposed to unearned income.
The major distinction now for both income and capital taxes is whether it is income arising from a lease of five years plus or not. With regard to the legal issues arising from long-term leasing, I refer you to Aisling Meehan’s excellent article in the 31 January 2015 edition of the Irish Farmers Journal.
Tax planning action 4: Structure your leases to qualify for the significantly increased income tax exemption on leasing income.
Capital gains tax reliefs on
conacre versus leased land
Farmers who let their land under conacre agreement were not eligible for the capital gains tax retirement relief, where the land was disposed of (other than to their child). The 2014 Finance Act gives farmers who let land on conacre and who sell or transfer their land to a third party (other than to their child) a once-off opportunity to avail of capital gains tax retirement relief, provided they satisfy the normal qualifying conditions and where they either:
Sell or transfer their land before 31 December 2016. Or, if sold or transferred after 31 December 2016, they had on or before 31 December 2016 leased their land for a minimum period of five years (up to a maximum of 25 years).The letting can be to an individual, a partnership or a company. From 1 January 2015, land that has been leased for up to 25 years in total (increased from 15), ending on the date of the disposal, will now qualify for the relief.
Normal qualifying conditions
The normal qualifying conditions which must be satisfied are that the person selling or transferring the farm is:
Aged 55 years or over.Has owned and farmed the land for 10 years up to either the date of the sale/transfer, or the commencement date of the lease/conacre arrangement.Tax planning action 5: The income and capital taxation treatment of conacre and leased land has changed dramatically. The 31 December 2016 is a critical date. If you are letting land under a short lease agreement or on conacre, review your income tax and succession tax planning immediately.
Obligation to register leases with PSRA
Farmers who have entered into land leasing agreements since 3 April 2012 are required to register the lease with the Property Services Regulatory Authority (PSRA). The PSRA is required to develop and maintain a commercial lease register, and tenants of a commercial lease (including land leases) are required to provide the PSRA with specific information regarding the commercial lease.
Information required
The lessee must provide the following information to the PSRA:
The commencement date of lease.The rent (if any) being paid for the lease.The frequency at which the rent will be reviewed.Particulars of who is responsible for rates, insurance, service charges and repairs to the property.Particulars relating to any break-clause in the lease.The information must be registered with the PSRA 30 days after commencement of the lease. The registration requirement does not apply to leases entered into prior to 3 April 2012.
The registration requirement does not apply to conacre agreements (short-term 11-month rentals) as these are not deemed to be commercial leases, but rather licences. There is no fee for registering the information at www.psra.ie
Agricultural leases now
exempt from stamp duty
As a further concession in order to promote the use of long-term leases of agricultural land, leases between five and 35 years in duration to active farmers are now exempt from stamp duty.
5. Farmers planning to
consolidate their holdings
Farmers selling land to fund the purchase of another piece of land as part of their individual farm restructuring/consolidation plan are entitled to capital gains tax relief. The relief also applies to land swaps. The qualifying conditions have been changed as follows:
The qualifying period has been extended to 31 December 2016.Whole farm replacement will now qualify, but will be confined to agricultural land transactions only – the relief will not apply to buildings on the land.Tax planning action 6: If you are currently in the process of or plan to carry out farm restructuring/ consolidation, you may qualify for this valuable relief.
6. Landowners who own zoned land
Windfall tax is applied at an 80% rate to profits and gains on land disposals and land development attributable to re-zoning. With effect from 1 January 2015, the windfall tax has been abolished.
Tax planning action 7: If you have land which was zoned for development, examine your commercial plans as its sale or disposal will not now be liable to the 80% windfall tax, but to the normal capital gains, income or corportion tax rules, whichever is applicable.
There have been a number of changes to land-related taxes in recent years and this continued in the 2014 budget. These may have repercussions for people who already have their will drafted and also may have implications for individuals. The changes are mainly directed at ensuring that income and capital tax reliefs apply where land is being transferred to bona fide active farmers.
This article covers issues which the following categories of landowners and farmers should be aware of:
1. Persons receiving a gift or inheritance of farmland.2. Landowners aged 67 and over, disposing of farmland after 31 December 2015.3. Landowners aged 66 and over, disposing of farmland today.4. Landowners letting land to other farmers.5. Farmers planning to consolidate their holdings.6. Landowners who own zoned land.1. Persons receiving a gift or
inheritance of farmland
There are a number of very valuable tax reliefs available on the transfer of the family farm. However, due to recent changes, it is now more difficult to qualify for them. Consider the impact of not qualifying for agricultural relief on the transfer of 100 acres to a child, together with buildings, plant and machinery and livestock with a total value of €1.5m.
Therefore, there is a potential tax bill of €420,000 on the transfer of a 100-acre farm where the 90% relief is not available.
The qualifying conditions for the 90% agriculture value relief deduction have been changed with effect from 1 January 2015. It is now more difficult to qualify for this relief.
In addition to satisfying the existing value test, the recipient must also:
a. Farm the land on a commercial basis for six years, for not less than 50% of his/her normal working time. b. Or, be a young, trained farmer (satisfying certain agricultural training qualification conditions) and farm the land on a commercial basis for six years. c. Or, lease the land for a period of six years or more to someone who satisfies the conditions of either (a) or (b) above.The normal working time test
The Revenue Commissioners have stated that they will accept, for the purposes of this relief, that “normal working time” (including on-farm and off-farm working time) approximates to 40 hours/week.
This is to enable farmers with off-farm employment to qualify for the relief, provided they spend a minimum of 20 hours working per week averaged over a year on the farm.
If a farmer can show that his/her normal working time is somewhat less than 40 hours/week, then the 50% requirement will be applied to the actual hours worked – subject to being able to show that the farm is farmed on a commercial basis with a view to the realisation of profits.
Withdrawal of relief
Agricultural relief is subject to withdrawal if the agricultural property is disposed of within six years of the date the inheritance or gift was received and the proceeds of the disposal are not reinvested into other qualifying agricultural property. In relation to gifts and inheritances received on or after 1 January 2015, the relief is also subject to withdrawal if within a period of six years from the valuation date, any of the qualifying conditions (see above) governing the relief are not satisfied.
Tax planning action 1
It is now more difficult to qualify for and retain the agricultural relief. Review your will and succession plans now.
Landowners aged 67 and
over, disposing of farmland
after 31 December 2015.
There is a 50% stamp duty reduction on transfers between related persons of non-residential property carried out on or before 31 December 2017. Between 1 January 2015 and 31 December 2015, a transfer by a person of any age can qualify for the relief. However, after that date, and until 31 December 2017, only a transfer by a person under 67 years of age can qualify for the relief. The person to whom the land is transferred must:
1. Farm the land or lease it for a period of not less than six years to an individual who farms the land.2. The person who farms the land must have an agricultural qualification of the kind necessary to qualify for the young trained farmer stamp duty relief, or farm the land for no less than 50% of his/her normal working time.3. The land must be farmed on a commercial basis and with a view to realisation of profits. The relief is subject to withdrawal if any of the conditions cease to be satisfied during the six-year period.
2: Review your succession plan – for farmers aged 67 years and over, the relief ceases on 31 December next and for all other farmers on 31 December 2017.
3. Landowners aged 66 and over, disposing of farmland today
While examining your stamp duty position and your succession plan, you should also consider previous capital gains tax (CGT) budget changes penalising farmers over 66 years of age as follows:
Reduced relief on sales or transfers to non-family members – the €750,000 CGT retirement relief which applies to the sale or transfer of land, sites, etc, to non-family members is reduced to €500,000 for transfers by farmers aged 66 and over.Intra-family transfer relief was capped – the availability of CGT retirement relief on intra-family land sales and transfers by farmers aged 66 and over is capped at €3m.Tax planning action 3: If you are approaching 66 years of age, be aware of the age restrictions on availing of capital gains tax retirement relief.
4. Landowners letting land
to other farmers
Income tax relief for leased land has significantly increased. Up to, and including, the 2014 tax year, a person aged 40 years or over, or permanently incapacitated, could lease their farmland for a period of five years or more and avail of an income tax exemption.
From 1 January 2015, the lower age qualifying threshold of 40 has been removed and the tax exempt amounts qualifying have been increased (see table 2).
Where the lease includes land and direct payment entitlements, the rental income attributable to the direct payment entitlements also qualifies for the relief subject to the appropriate ceiling.
The conditions applying are:
The lease must be based on a formal lease document.The land must be leased to individual/s who are unconnected with the lessor and who use the land for the purposes of farming. A company may be an eligible lessee, provided it is not connected to the lessor.Both husband and wife owning leased land jointly can avail of the relief individually.Conacre income versus leasing income
Income and capital tax changes, together with stamp duty modifications, brought in by the 2014 Finance Act all combine to giving special favourable tax status to income from long leases of land at the expense of conacre (11-month lease). There is no significance in whether rental income is declared as earned as opposed to unearned income.
The major distinction now for both income and capital taxes is whether it is income arising from a lease of five years plus or not. With regard to the legal issues arising from long-term leasing, I refer you to Aisling Meehan’s excellent article in the 31 January 2015 edition of the Irish Farmers Journal.
Tax planning action 4: Structure your leases to qualify for the significantly increased income tax exemption on leasing income.
Capital gains tax reliefs on
conacre versus leased land
Farmers who let their land under conacre agreement were not eligible for the capital gains tax retirement relief, where the land was disposed of (other than to their child). The 2014 Finance Act gives farmers who let land on conacre and who sell or transfer their land to a third party (other than to their child) a once-off opportunity to avail of capital gains tax retirement relief, provided they satisfy the normal qualifying conditions and where they either:
Sell or transfer their land before 31 December 2016. Or, if sold or transferred after 31 December 2016, they had on or before 31 December 2016 leased their land for a minimum period of five years (up to a maximum of 25 years).The letting can be to an individual, a partnership or a company. From 1 January 2015, land that has been leased for up to 25 years in total (increased from 15), ending on the date of the disposal, will now qualify for the relief.
Normal qualifying conditions
The normal qualifying conditions which must be satisfied are that the person selling or transferring the farm is:
Aged 55 years or over.Has owned and farmed the land for 10 years up to either the date of the sale/transfer, or the commencement date of the lease/conacre arrangement.Tax planning action 5: The income and capital taxation treatment of conacre and leased land has changed dramatically. The 31 December 2016 is a critical date. If you are letting land under a short lease agreement or on conacre, review your income tax and succession tax planning immediately.
Obligation to register leases with PSRA
Farmers who have entered into land leasing agreements since 3 April 2012 are required to register the lease with the Property Services Regulatory Authority (PSRA). The PSRA is required to develop and maintain a commercial lease register, and tenants of a commercial lease (including land leases) are required to provide the PSRA with specific information regarding the commercial lease.
Information required
The lessee must provide the following information to the PSRA:
The commencement date of lease.The rent (if any) being paid for the lease.The frequency at which the rent will be reviewed.Particulars of who is responsible for rates, insurance, service charges and repairs to the property.Particulars relating to any break-clause in the lease.The information must be registered with the PSRA 30 days after commencement of the lease. The registration requirement does not apply to leases entered into prior to 3 April 2012.
The registration requirement does not apply to conacre agreements (short-term 11-month rentals) as these are not deemed to be commercial leases, but rather licences. There is no fee for registering the information at www.psra.ie
Agricultural leases now
exempt from stamp duty
As a further concession in order to promote the use of long-term leases of agricultural land, leases between five and 35 years in duration to active farmers are now exempt from stamp duty.
5. Farmers planning to
consolidate their holdings
Farmers selling land to fund the purchase of another piece of land as part of their individual farm restructuring/consolidation plan are entitled to capital gains tax relief. The relief also applies to land swaps. The qualifying conditions have been changed as follows:
The qualifying period has been extended to 31 December 2016.Whole farm replacement will now qualify, but will be confined to agricultural land transactions only – the relief will not apply to buildings on the land.Tax planning action 6: If you are currently in the process of or plan to carry out farm restructuring/ consolidation, you may qualify for this valuable relief.
6. Landowners who own zoned land
Windfall tax is applied at an 80% rate to profits and gains on land disposals and land development attributable to re-zoning. With effect from 1 January 2015, the windfall tax has been abolished.
Tax planning action 7: If you have land which was zoned for development, examine your commercial plans as its sale or disposal will not now be liable to the 80% windfall tax, but to the normal capital gains, income or corportion tax rules, whichever is applicable.
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