The IFA master lease which is used by many professionals is a comprehensive document which will suit most situations with perhaps some adjustments or inclusions to meet particular requirements.
For example, a landowner might wish to reserve certain rights of access or a right to remove timber from the land, or he/she may wish to make provision for the possible transfer of sites to family members at a future unspecified date.
A landowner may wish to reserve sporting rights or alternatively prohibit sporting activities.
Where the lease includes Basic Payment entitlements it should contain - which the IFA Master Lease does - comprehensive provisions in regard to ensuring that payment is secured and that the entitlements are not in any way jeopardised.
BASIC PAYMENT ENTITLEMENTS
In many cases farmers will be leasing their basic payment entitlements along with the land. A big concern is that by so doing the landowner may ultimately lose those entitlements because he/she has not been farming the land.
Under the terms of the Single Farm Payment Scheme, an active farmer was allowed retain the entitlements and continue to lease them under the Private Contact clause provisions.
An active farmer was a person who had been submitting an annual Single Farm Payment form declaring that they were farming a hectare or more.
The Basic Payment Scheme is due to finish in 2019 and it may be wise for those intending to lease out their farms and entitlements in 2018 to retain at least a hectare and make a Basic Payment return in 2018 and 2019.
As a further precaution in the event that rule changes result in the benefit of the entitlements passing over to the person actually farming the land (the tenant), the landowner may include a provision whereby such benefit or a part thereof is reflected in a future rent review.
Table 1 sets out the relief available for the various lengths of lease for an individual landowner.
A spouse or civil partner is also entitled to the relief, so if the land happens to be in joint names or if the spouse/civil partner has land to lease separately, both parties are entitled to the relief, so the thresholds are doubled.
Where the annual rent exceeds the allowable limit, there may be a case for transferring the lands into joint names.
Professional advice from a tax expert should be sought in this regard as there may be Capital Gains Tax implications if any of the land was to be subsequently sold.
It should be noted that the tax exemption refers to Income Tax only and not PRSI or Universal Social Charge, so the rent has to be declared on your annual tax return.
ELIGIBLE TENANTS AND LANDOWNERS
There are very few conditions for qualifying as an eligible landowner (lessor).
The landowner must have title to the land but does not necessarily have had to farm it previously.
There is no lower age limit. There are restrictions set down as who qualifies as an eligible tenant, and Table 2 sets out the various parties that do and do not qualify.
Farmers who have out-farms that are some distance from the home farm could consider leasing out such farms and leasing in lands that are adjacent to the home farm where such lands become available.
Apart from assisting farm consolidation, this would have the added benefit of the rent which he/she receives being tax-free and the rent he/she pays out as being tax deductible. However, it should be noted that leasing to and from the same landowner will not qualify for the tax exemption.
Assuming the land leased in is equal or greater in area than the land leased out, there should be no negative implications for the Basic Payment.
REGISTERING AND STAMPING A LEASE
All witnessed leases require to be stamped with the Revenue Commissioners. Stamping costs 1pc of the first year's rent and is once-off.
It is also a legal requirement that all leases are registered (at no cost) with Property Services Regulatory Authority (PSRA).
Martin O'Sullivan is the author of the ACA Farmers Handbook. He is a partner in O'Sullivan Malone and Company, accountants and registered auditors; www.som.ie
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