I have received several queries of late regarding the benefits and drawbacks of leasing land on a long-term basis.
Given the enhanced tax incentives introduced in Budget 2015 to encourage landowners to lease out their land in the long term, the benefits seem to far outweigh perceived drawbacks.
When you consider that land owned jointly can qualify for an annual income tax exempt amount of up to €80,000 per year, it is hard to justify retaining the land and farming it yourself unless you are making an equivalent return.
Extent of relief
For leases entered into on/after 1 January 2015, the amount of income that may be exempt under a qualifying long-term lease is as follows:
€40,000 where the qualifying lease is for 15 years or more.€30,000 where the qualifying lease is for 10 but less than 15 years.€22,500 where the qualifying lease is for seven but less than 10 years.€18,000 where the qualifying lease is for five or six years.However, the rental income is subject to PRSI and the universal social charge.
Basic Payment Scheme payment
Where a farmer leases both his/her land and the Basic Payment Scheme (BPS) entitlements, the entire amount received will qualify for relief subject to the overall limits.
It is common for a farmer to pay back a landowner the value of his/her BPS as part of the rent and this payment will qualify as rent for the purposes of claiming the relief.
Land owned jointly
If the land is owned by more than one person such as between a husband and wife or siblings, each joint owner is entitled to claim the exemption in their own right, eg a husband and wife can claim a combined €80,000 rent tax-free each year where the land is owned jointly and the lease is for 15 years or more.
Beware of transferring land into joint names to increase the level of exemption as it could affect succession planning and the availability of CGT retirement relief.
Land lease between relatives
The person leasing the land must not be “connected’ to the owner of the land. Guidance on the issue suggests that a lessor is not entitled to the relief where land is let to:
Immediate family (eg grandparents, parents, brothers, sisters, children, grand-children).A spouse or civil partner or the immediate family of the spouse or civil partner.However, a cousin is not deemed to be “connected”; therefore, leases of land between cousins should qualify for the relief.
While the income tax incentive encourages many to lease their land for the long term, there are many other considerations in making a decision to do this, including practical, legal and tax considerations and landowners should ensure that they get advice in respect of all aspects before making a decision to lease land for the long term.
Read more
Why you should plan farm transfer early to avoid heavy Fair Deal charges
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. does not accept responsibility for errors or omissions howsoever arising. E-mail ameehan@farmersjournal.ie
I have received several queries of late regarding the benefits and drawbacks of leasing land on a long-term basis.
Given the enhanced tax incentives introduced in Budget 2015 to encourage landowners to lease out their land in the long term, the benefits seem to far outweigh perceived drawbacks.
When you consider that land owned jointly can qualify for an annual income tax exempt amount of up to €80,000 per year, it is hard to justify retaining the land and farming it yourself unless you are making an equivalent return.
Extent of relief
For leases entered into on/after 1 January 2015, the amount of income that may be exempt under a qualifying long-term lease is as follows:
€40,000 where the qualifying lease is for 15 years or more.€30,000 where the qualifying lease is for 10 but less than 15 years.€22,500 where the qualifying lease is for seven but less than 10 years.€18,000 where the qualifying lease is for five or six years.However, the rental income is subject to PRSI and the universal social charge.
Basic Payment Scheme payment
Where a farmer leases both his/her land and the Basic Payment Scheme (BPS) entitlements, the entire amount received will qualify for relief subject to the overall limits.
It is common for a farmer to pay back a landowner the value of his/her BPS as part of the rent and this payment will qualify as rent for the purposes of claiming the relief.
Land owned jointly
If the land is owned by more than one person such as between a husband and wife or siblings, each joint owner is entitled to claim the exemption in their own right, eg a husband and wife can claim a combined €80,000 rent tax-free each year where the land is owned jointly and the lease is for 15 years or more.
Beware of transferring land into joint names to increase the level of exemption as it could affect succession planning and the availability of CGT retirement relief.
Land lease between relatives
The person leasing the land must not be “connected’ to the owner of the land. Guidance on the issue suggests that a lessor is not entitled to the relief where land is let to:
Immediate family (eg grandparents, parents, brothers, sisters, children, grand-children).A spouse or civil partner or the immediate family of the spouse or civil partner.However, a cousin is not deemed to be “connected”; therefore, leases of land between cousins should qualify for the relief.
While the income tax incentive encourages many to lease their land for the long term, there are many other considerations in making a decision to do this, including practical, legal and tax considerations and landowners should ensure that they get advice in respect of all aspects before making a decision to lease land for the long term.
Read more
Why you should plan farm transfer early to avoid heavy Fair Deal charges
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. does not accept responsibility for errors or omissions howsoever arising. E-mail ameehan@farmersjournal.ie
This is a subscriber-only article
SHARING OPTIONS: