Tax exempt income for farmers
Published 09/04/2014 | 05:22
A landowner who leases farmland and farm buildings for periods of ten years or more will be tax exempt on annual rents up to €20,000 provided the landowner is aged 40 or more.
The tenant must not be a close relative e.g. son, daughter or spouse, uncle, niece etc. The lease must be in writing and the tenant must use the land for farming. Any payments received by the owner under the EU Single Payment Scheme will also be treated as if they were rent where the land is let long-term and will be exempt from income tax.
There are reduced exemption limits for shorter leases. Thus, a lease for 7 years has a €15,000 per annum exemption and one for 5 years has a €12,000 per annum exemption. A person may have several tenants and it is the total rent from them all that is subject to the limits.
If a person wanted to let long-term a large farm it would be possible to put half of the land in the name of the spouse and then sign two 10 year leases with their tenants. Each spouse would then have a €20,000 annual rental exemption from tax.
Where a landowner has several leases, some long-term and some short-term, the relevant expenses must be attributed to each lease. It is the net profit from the long-term leases which is exempt and not the gross rent. It would be incorrect to show all the rental expenses as attributable to short-term leases which are taxable.
If a landowner does not wish to let the land but does not wish to farm it either the best solution is to plant it with trees as a farmer get a higher rate of Forest Premium than the non-farmer and the forestry income from all sources is free of Income Tax subject to an annual limit of €80,000 per spouse.
In practise the limit of €80,000 will only be approached or exceeded at the clear-fell stage unless the acreage is very large.
The principal disadvantage with forestry is that it is so long-term. There is a requirement to replant or else repay the forest premium so that the land is gone from farming for the owner's lifetime. With about 20,000 forest owners many farmers seem to have successfully made the transition to forestry.
If you want a short rotation, say 10 year crop, try Christmas Trees which profits for the grower are also exempt from tax.
However, there is a lot of skill, science and hard work to get a good crop and many crops have failed since the "non-shed" varieties were introduced over 20 years ago.