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Income Tax Measures

An indicative list of the income tax measures that are available to the farming sector are listed here, along with a brief explanation (updated for changes introduced in Budget 2015).  Please note that these do not purport to give a definitive legal interpretation of the various measures and individuals may wish to seek professional advice if availing of them.

Exemption of Certain Income from Leasing of Farm Land

Income Averaging Farming

Capital Allowances

  • Capital Allowance for Farm Buildings and Other Works
  • Capital Allowance for Milk Quota Purchase

Relief for Increase in Carbon Tax on Farm Diesel

Stock Relief

  • 25% General Stock Relief on Income Tax
  • 100% Stock Relief on Income Tax for Certain Young Trained Farmers
  • 50% Stock Relief on Income Tax for Registered Farm Partnerships
  • Relief for Stock Transfer due to discontinued Farming Trade

Profits from Occupation of Woodlands

Special Treatment of Profits from Compulsory Disposal of Livestock

  • Income Averaging for Compulsory Disposal of Livestock
  • Stock Relief for Compulsory Disposal of Livestock

Exemption of Certain Income from Leasing of Farm Land

This is a long standing relief, designed to encourage longer term leases of farm land. The lease must have a minimum definite term of five years or more to qualify for relief. There have been a number of modifications to this measure since it was introduced initially in 1985.

With effect from 1 January 2015 the amount of income that may be exempted under a qualifying long term lease has been increased by 50% and a fourth threshold has been introduced for lease periods of 15 or more years with income of up to €40,000 being exempted.

Where one or more qualifying leases are entered into, some on or after 1 January 2015 and some at any other time (i.e. prior to 1 January 2015) then the amount of the exemption is limited, in aggregation, to the following:

  • €18,000 per annum where leases are 5 or 6 years
  • €22,500 per annum where leases are 7 but less than 10 years
  • €30,000 per annum where leases are for 10 but less than 15 years
  • €40,000 per annum where leases are for 15 years or more

For land jointly owned each individual is entitled to a separate maximum reduction of the appropriate amounts listed above against their respective share of the rent from a qualifying lease.

The lower age threshold of 40 years for lessors has been removed and in consequence the reference to lessors who are permanently incapacitated has also been removed.

A qualifying lessee is an individual who is not connected with the lessor (or with any of the lessors if there is more than one). Effectively this means that a lessor is not entitled to relief where the land is let to family members or family members of their spouse or civil partner. A company may be an eligible lessee provided it is not connected to the lessor.  It should be noted however that while leases between connected persons are not eligible for the income tax exemption for long-term leases of land, this is balanced by the availability of Agricultural Relief from Capital Acquisition Tax (CAT) and Retirement Relief from Capital Gains Tax (CGT), which help facilitate intergenerational transfers of land.

 Since 1 January 2005 lease income can include income from land and standard Single Farm Payment entitlements (note: entitlements are attached to the Herd Number not the land), thus leasing land, the landowner/lessor may negotiate a value into the lease in return for also leasing out the existing entitlements to the farmer/lessee.  However, in situations where a lessor may have lost land in the past, through for example planting forestry or losing a conacre arrangement, the lessor may have stacked or consolidated these entitlements on their herd number which in effect meant they ended up with a higher unit value per entitlement.  It is not open in these instances for the landowner/lessor to then avail of this tax exemption by leasing out such consolidated entitlements on a long term basis.

Income Averaging Farming

Income averaging provides farmers with an option of adding farming profits for the current and previous years of assessment together to arrive at an average income for tax purposes.

For the years of assessment 2015 onwards the period of income averaging is increased from three to five years. Special transitional measures are included for those farmers who first elect to average in 2014. Special transitional measures are also included for those farmers who elect to opt out of averaging in 2015 and 2016.

Prior to 2015 a farmer could not elect to average if he/she or his/her spouse/civil partner carried on another trade or profession. This is changed from 2015 onwards to allow averaging of farming profits by a farmer where he/she or his/her spouse/civil partner carries on another trade provided that trade represents on-farm diversification.

One must be at least three years farming before one can opt into the income averaging system, and a farmer is obliged to remain in the system for a minimum of three years once they have committed entered it. If a farmer wishes to revert to the normal annual basis of assessment, the two years of assessment immediately before the final year of averaging are reviewed and, if necessary, additional assessments are made to ensure that the amount charged for each of those two years is not less than the amount charged for the final year of averaging.

Farmers who, or whose spouses or civil partners carry on another trade or profession or who are directors of companies which carry on a trade or profession cannot elect for income averaging.

Capital Allowances

Capital allowances are granted for tax purposes in lieu of a deduction for depreciation and are available in respect of certain qualifying expenditure incurred in the provision of certain assets in use for the purposes of a trade or rental business. They effectively allow the write off of the cost of an asset over a period of time. Listed here are capital allowances that are specific to the primary agriculture sector.

Capital Allowance for Farm Buildings and Other Works

An allowance is available on the construction of farm buildings (excluding dwelling house), fences, farm roadways, holding yards, drains, land reclamation and other ancillary works such as walls, water and electrical installation as a relief against income tax over a seven year period for capital expenditure.

The rate of the farm buildings capital allowance is 15 per cent of the capital expenditure for each of the first 6 years of the 7 year period with the balancing 10 per cent, allowed in year 7.

Capital Allowance for Milk Quota Purchase

An allowance is available for capital expenditure incurred on the purchase of a milk quota under the National Milk Quota Restructuring Scheme which was introduced from 1 April 2000 or any other milk quota purchased after that date. The allowance is available on a straight line basis over a seven year period at the rate of 15 per cent per annum over 6 years and 10 per cent in year 7.

The transfer of milk quota is operated by way of a pooled system at co-operative/dairy level. Under this scheme, quota holders may, at the end of each milk quota year, offer all or part of their milk quota for sale to their co-operative/dairy.

Relief for Increase in Carbon Tax on Farm Diesel

An income tax deduction is allowed for computing the profits of a farming trade to offset the increased costs of green (agricultural) diesel used in that trade which are attributable to the increase in the rate of carbon tax from 1 May 2012.

Agricultural diesel used by a farmer in the course of a farming trade is a deductible cost as it is a legitimate business expense. As carbon tax is included in the cost of that diesel, a farmer obtains a deduction for the amount of the carbon tax incurred on the purchase of farm diesel. In addition to the deduction for the cost of farm diesel, farmers are entitled to a double deduction for the increased carbon tax they incur on farm diesel purchased after 1 May 2012.

Stock Relief

Stock relief is a relief given on income tax in respect of increases in the value of a farm’s trading stock. It is calculated by reference to the increase in value of the trading stock between the beginning and end of an accounting period. The relief takes the form of a deduction, to be allowed in computing the trading profits of an accounting period, of a defined percentage amount of the increase in value of trading stock and work-in-progress at the end of the accounting period over and above the opening value.

Where stock relief is claimed the following general principles apply:

  • Unused losses from a previous year are not available subsequently;
  • Unused capital allowances for the year of claim, including any capital allowances brought forward and treated as capital allowances for the year of claim, are not available to carry forward to subsequent years;
  • Unused capital allowances for the year of claim cannot be used to create or augment a loss.

A standard stock relief rate is available to all farmers with enhanced rates also provided for in certain circumstances. Further details of these are outlined in brief here.

25% General Stock Relief on Income Tax

All farmers are allowed a relief on income tax of 25% on the increase in value of trading stock and work-in-progress at the end of the accounting period over and above the opening value. This long standing measure was extended in Budget 2013 for a further 3 year period until 31 December 2015.

100% Stock Relief on Income Tax for Certain Young Trained Farmers

Young trained farmers who meet minimum academic and training requirement are allowed a relief on income tax of 100% of the increase in value of trading stock and work-in-progress at the end of the accounting period over and above the opening value. To be eligible for the 100% rate of relief the farmer must be less than 35 years of age before the commencement of the accounting year of tax assessment. Young farmers in registered farm partnerships are eligible to claim the 100% stock relief. The enhanced 100% relief is available for up to four years to young farmers qualifying in the period on or before 31 December 2015.

This long standing measure has being subject to technical amendments over recent years and was extended in Budget 2013 for a further three year period until 31 December 2015. From 2013 onwards stock relief of 100% for young trained farmers is subject to an upper limit of €40,000 in any one year and €70,000 over any three years with a requirement to submit a business plan before 31 October in the year following first year of assessment. These additional criteria were introduced as part of EU State Aid requirements.

50% Stock Relief on Income Tax for Registered Farm Partnerships

Budget 2012 included a new stock relief rate whereby farmers in registered partnerships are allowed a relief on income tax of 50% of the increase in value of trading stock and work-in-progress at the end of the accounting period over and above the opening value, for a four year period from the 1 January 2012 up to the 31 December 2015. As outlined already certain young trained farmers in registered farm partnerships are allowed to claim a 100% stock relief from 2013 onwards, thus the 50% rate is available to all other categories of farmers participating in registered farm partnerships.

The legal basis for the 50% stock relief was Commission Regulation (EC) 1535/2007 on the application of the EC Treaty to de minimis aid in the sector of agricultural production, which sets out that the total de minimis aid to any individual farmer shall not exceed €7,500 over any three year period, with the total increasing to €15,000 over 3 years from 1 January 2014 onwards (as the EU agri de minimis Regulation was updated – EC 1408/2013). The net effect of these EU requirements is that stock relief claims by individuals in registered farm partnerships must now comply with the de minimis €15,000 rolling three year limit for assessment years 2013 onwards, with the lower €7,500 limit only applicable to the 2012 assessment year.

It is important to note that the upper aid limits quoted in the de minimis Regulations apply to payments for all schemes and measures which have the de minimis Regulation as their legal basis.

Relief for Stock Transfer due to discontinued Farming Trade

This relief on income tax allows a special method of valuing a farm’s trading stock which is transferred to another farmer by a farmer who is ceasing farming. The parties to the transfer have the option of electing to have the trading stock transferred at its book value (instead of at market value which would be the normal valuation used) thereby cancelling the profits that would otherwise have arisen to the transferor.

Profits from Occupation of Woodlands

Income from woodlands managed on a commercial basis and with a view to the realisation of profits is tax exempt. However from 31 December 2006 this income has been subject to the high earners restrictions limits. This was updated in Budget 2010 when modifications were introduced on the limitations on amount of certain reliefs, including the woodlands exemption, which could be used by certain high income individuals. These changes have effect from assessment year 2010 onwards.

Special Treatment of Profits from Compulsory Disposal of Livestock

A special treatment is available in respect of profits arising from the disposal of livestock due to statutory disease eradication measures. Two types of relief are provided for; income averaging and stock relief.

Income Averaging for Compulsory Disposal of Livestock

Under the income averaging provisions for compulsory disposal of livestock the farmer may elect to:

(a)    Have the profits excluded from their taxable income in the assessment year in which the disposal arises and to have the profits taxed in four equal instalments in each of the four following assessment years;

Or

(b)   Have the profit treated as arising in equal instalments in the assessment year in which the disposal actually arose, and the following three assessment years.

Stock Relief for Compulsory Disposal of Livestock

Where the receipts from the disposal of livestock are reinvested in livestock, the farmer may elect to claim stock relief equal to the difference between the amount of compensation received and the opening stock value of the stock disposed of. This figure is called the “excess”. There is a four year reinvestment period and provided the full proceeds of the compulsory disposal i.e. compensation and sales proceeds, are reinvested within the four years then 100% of the “excess” may be claimed by way of stock relief. Where the full proceeds are not reinvested the stock relief is then reduced proportionately.