IFA BRIEFING NOTE ON MAIN CHANGES TO AGRI-TAXATION FROM JANUARY 1 2015 INTRODUCTION The outcome of the Agri-taxation review, undertaken in 2014, was the retention of all existing agritaxation measures, and the enhancement of many measures. In addition, a number of changes were introduced to better target the measures at farmers. The new and changed measures have been in place since 1 st January 2015. These are outlined below. This briefing note is intended to provide a user-friendly guide to the main changes introduced, and is not a legal interpretation of the taxation changes. When undertaking significant decisions, such as farm transfer, land leasing etc, it is advised to seek independent taxation advice. A comprehensive guide to the changes has been developed by the Revenue Commissioners, upon which this note is based. For further information, the Revenue Guidance note can be accessed at: http://www.revenue.ie/en/practitioner/ebrief/archive/2014/no-1082014.html 1 Capital Acquisitions Tax - Agricultural Relief For an individual to qualify for 90% Agricultural Relief when the farm is transferred to them, from 1 st January 2015, they must fulfil the criteria of being a farmer. This means the following: 80% of their assets must be agricultural assets at the time of the transfer, and they must farm or lease the land for a minimum of six years In addition, they must fulfil one of the following criteria. They must have an agricultural qualification (e.g. the Green Cert, Ag Science degree) or must obtain that qualification within 4 years of the farm being transferred and must farm the land on a commercial basis, with a view to making a profit (no specific time commitment) or If they do not have the agricultural qualification, they must spend not less than 50% of their normal working time farming. normal working time is interpreted as 40 hours per week. Therefore, the person will have to spend 20 hours a week farming. Regardless of the hours worked off-farm, the maximum requirement for on-farm hours will be 50% of a 40 hour week. or If the person does not fulfil these criteria, they can still qualify for Agricultural Relief if they lease out the farm that has been transferred to them to a farmer (who fulfils either of the criteria above) for a minimum of six years. In effect therefore, the Agricultural Relief will be available to both full and part-time farmers, and to young people who may not be farming a lot at the moment but who have, or are going to get, their agricultural qualification. And for those who are not going to farm, the option of qualifying for the Agricultural Relief still remains, so long as they lease the land out long term to a farmer.
Additional information on terms used: Where the agricultural property is being leased, it may be leased to a number of lessees, so long as all of these lessees satisfy the condition of being a farmer. The lease can be to an individual, partnership of limited company where the main shareholder and working director farms the agricultural property on behalf of the company. Where land is leased to a company that is owned by an individual and their spouse, and at least one of them satisfies the working director and farming requirements, the relief will apply. In all cases (whether owner is farming or where the farm is leased), the agricultural property must be farmed on a commercial basis and with a view to the realisation of profits If during the 6 year period a beneficiary farms the agricultural property and then decides to lease it, relief will not be withdrawn, provided the lease and the lessee satisfy the conditions of the relief (for the remaining period of the 6 years). Similarly, if a beneficiary initially leases the agricultural property and decides, within the 6 year period, to end the lease and to personally farm, relief will not be withdrawn. If a farmer can show that his or her normal working time is somewhat less than 40 hours a week, then the 50% requirement will be applied to the actual hours worked The level of farming activity will be the main consideration for Revenue on whether the normal working time requirement is being satisfied. If it can be shown that certain farming activities, e.g. farm forestry, are carried out on a commercial basis, but do not require 20 hours per week to be spent on such farming activities, Revenue will take this into consideration in deciding whether the relief is due. Determining whether an individual is farming on a commercial basis with a view to making a profit will be determined on an individual basis. Where a farmer continuously makes losses year on year, Revenue may have to examine whether that person is genuinely farming on a commercial basis Withdrawal of Agricultural Relief Relief will be withdrawn if, in the six years following the inheritance/gift of the farm: The beneficiary ceases farming and does not lease out the land to a lessee who farms the land for the remainder of the 6 year period The beneficiary disposes of the agricultural property without reinvestment in further agricultural property that is farmed by the beneficiary or by a lessee for the remainder of the 6 year period. In accordance with self-assessment principles it is the taxpayer s duty to make any necessary amendment to returns / self-assessments to ensure relief is withdrawn where appropriate. Flexibility on dates to commence activity The Revenue Commissioners have provided significant flexibility for beneficiaries, which will allow for them to cease working to take up farming, fulfil the 80% asset test, fulfil the time commitment required or arrange for the farm to be leased out, and still qualify for Agricultural Relief. In summary: Where the agricultural property is a gift, the date of the gift is deemed to be the valuation date In the case of inheritance, the date of gift can be either the date of inheritance (individual farms the property from the date of death of the deceased) or administration. Where farming commences between the date of the gift or inheritance and the valuation date, Revenue will accept that the 6 year period will commence from the earliest time that the agricultural property is first farmed, whether by the person who inherits or is gifted the farm or by a lessee.
Where a beneficiary inherits agricultural property and intends to farm it, but is genuinely unable to do so immediately from the valuation date because of existing work commitments or other personal circumstances, the relief will not be refused where the beneficiary otherwise fulfils the requirements of the relief on taking up farming. Examples of such situations include: The beneficiary may have existing work commitments that may take time to complete. The beneficiary may be living and working abroad, such that it may take time to organise a return to Ireland including completion of existing work commitments. The beneficiary may be a full-time student whose studies are not completed. Additional flexibilities on leasing out farmland and use of farm house Where a beneficiary gets a gift/inheritance of agricultural property, that includes agricultural land and a farm house, and leases out the land for six years, but retains the farm house to live in, Revenue will not restrict any part of the agricultural relief. Similarly, if the agricultural property includes plant and machinery or livestock, but a lessee only requires the land, agricultural relief will not be restricted where the land comprises substantially the whole of the agricultural property. 2 Stamp Duty 2.1 Long-term leases Relief from stamp duty will be provided on a lease of land, for a term not less than 6 years and not exceeding 35 years, which is used exclusively for farming carried on by the lessee on a commercial basis and with a view to the realisation of profits. The lessee is also required, from the date on which the lease is executed, to farm the land for not less than 50% of the lessee s normal working time. In addition, if the lessee fails to satisfy these conditions within 6 years of the lease being executed, stamp duty will have to be paid for that lease. It should be noted that this provision is still awaiting EU State Aid approval, and therefore, stamp duty is still payable on long-term leases until further updated. 2.2 Consanguinity Relief Stamp Duty consanguinity relief (i.e. the halving of the stamp duty rate of 2% to 1% for transfers between family members) has been extended for a further 3 years (i.e. to 31 December 2017). Between 1 st January 2015 and 31 st December 2015, the 1% rate will be available on all qualifying transactions, regardless of the age of the transferor. From 1 st January 2016, the transferor must be aged 66 or less (i.e. not have reached the age of 67) for the lower, 1% rate to apply. Where the transferor 67 or older the transfer will incur stamp duty of 2%. In addition, the party to whom the land is transferred/sold must be a farmer as per the definition outlined in relation to agricultural relief (i.e. has an agricultural qualification or spends not less than 50% of their normal time farming or who leases the land for a period of not less than 6 years to a farmer).
3 Relief for Certain Income from Leasing of Farm Land (Land Leasing Income Tax Exemption) For qualifying long term leases taken out from 1 January 2015 there is a 50% increase in the amounts of rental income that can be exempted A fourth threshold for lease periods of 15 or more years has also been introduced, with income of up to 40,000 being exempted. Therefore, for qualifying leases the income tax exemption is capped at the following: 40,000 where the qualifying lease is for 15 years or more, 30,000 where the qualifying lease is for 10 to less than5 years (i.e. 10 years or more but less than 15 years) 22,500 where the qualifying lease is for 7 to less than 10 years, and 18,000, where the qualifying lease is for 5 or 6 years. Exempt income can include the rental income earned from the leasing out of land, which includes the leasing out of SFP entitlements. Two other changes were introduced to the long-term leasing exemption scheme: The lower age threshold of 40 years of age for eligibility for lessors is removed. A company can be an eligible lessee provided it is not connected to the lessor (e.g. farmer who has incorporated cannot lease the land to his company and avail of the tax exemption). The company must use any farm land leased for the purpose of the trade of farming. 4 INCOME AVERAGING 4.1 Extension from 3-5 Years From 2015 the period of income averaging is increased from three to five years. Special transitional measures are included for: Farmers who first elect to average in 2014 and who otherwise would not be eligible to average in 2015, as under the new rules they would not be in their fifth year of averaging. Those farmers who elect to opt out of averaging in 2015 and have therefore never averaged on a 5 year basis. Those farmers who elect to opt out of averaging in 2016 but have only been averaging since 2014 These farmers will be assessed according to the old 3 year averaging rules. 4.2 Additional source of self-employed income In the past, a farmer could not elect to average if he or his spouse/civil partner carried on another trade or profession. Averaging of farming profits can now be availed of by a farmer where he or his spouse / civil partner carries on another trade, provided that trade is in relation to on-farm diversification. The permissible trade must be ancillary to the trade of farming and must be carried on by the individual or his/her spouse/civil partner on the farm land used by the individual for the trade of farming
5 Capital Gains Tax 5.1 Farm Restructuring Relief Relief from capital gains tax for farm restructuring has been extended so that it can now be claimed where the first transaction in the restructuring, for example, the sale, purchase or exchange of farm land, is carried out on or before 31 December 2016 and where the restructuring is then completed within 24 months. However, in order to comply with EU State-aid requirements, the relief is now confined to agricultural land only it does not apply to buildings on the land. In addition, the rules on farm restructuring relief will be amended to allow now for whole farm disposals i.e. where one farm is replaced with a more consolidated farm (fewer parcels or reduction in distance between parcels). 5.2 CGT Retirement Relief letting of land CGT retirement relief is available to farmers on the disposal of land that has been let, in certain circumstances. Land can now be let for up to 25 years prior to being disposed of, and, dependent on certain rules, will qualify for CGT retirement relief. In all cases, to qualify for the relief, the land must have been owned and farmed by the disponer for 10 years prior to the land being let. Where the disposal is to a child - A farmer who disposes of the land to his or her child can let the land on a long or short term basis (i.e. leasing or conacre) and will qualify for retirement relief, provided they have let it for less than 25 years, and owned and farmed the asset for 10 years prior to first letting. Where the disposal is other than to a child - Farmers who currently let their land on conacre and who ultimately dispose of their land to a third party (other than a child ) now have a once-off opportunity to avail of CGT retirement relief. These farmers have the option to either: dispose of their land on or before 31 December 2016, or lease their land on or before 31 December 2016 for a minimum period of 5 years (up to a maximum of 25 years) and ultimately dispose of the land. 6 Stock Relief 6.1 Young Trained Farmer Relief A new third level course has been added to the list of approved courses for eligibility by young trained farmers to claim 100 per cent stock relief. This is the Bachelor of Science (Honours) in Sustainable Agriculture. 6.2 Farm Partnerships Following the increase in the EU limits for de minimis State aid there will be an increase in the maximum amount of stock relief allowable for Registered Farm Partnerships to 15,000 over 3 years.
7 VAT - Farmers flat-rate addition The Farmers flat rate VAT addition is increased from 5.0 per cent to 5.2 per cent with effect from 1 January 2015. 8 CGT Exemption - Single Farm Payment Entitlements An exemption from CGT was provided on any chargeable gains arising from the disposal by farmers of payment entitlements under the Single Payment Scheme, where all of those entitlements were fully leased and where the owners, because of the change in Common Agricultural Policy regulations, were advised by the Department of Agriculture, Food and the Marine, to transfer their entitlements to an active farmer on or before 15 May 2014 9 Windfall tax Both the 80 per cent rate of income tax on profits from certain land rezonings and the 80 per cent rate of capital gains tax on gains from the disposal of land subject to these rezonings will be removed. With effect from 1 January 2015 the normal rates of income tax, corporation tax or capital gains tax will apply to such profits or gains. Rowena Dwyer February 2015