The normal payment to the landowner for such an option would be up to €1,500 per turbine or thereabouts.
Tax aspect of option payment
For tax purposes the granting of such an option by the landowner would be regarded as disposing of a partial right on the lands. This could create a liability to capital gains tax (CGT) as a part disposal of an interest in the lands.
If the landowner is over 55 and meets other requirements, retirement relief under the CGT might apply.
Depending on how an option agreement is worded, the payment on foot of the option agreement might alternatively be regarded by Revenue as compensation for disturbance and thus be liable to income tax over the duration of the option agreement.
In the event that the wind farm developer exercises the option to take the lease within the period allowed in the option agreement, the lease agreement is then entered into between the landowner and the wind farm developer.
The income to landowners from such lease agreements relating to wind turbines is subject to income tax in the same manner as rental income from any other rental property. The level of income tax arising will depend on the landowner's existing level of taxable income.
Farming capital allowances or pension payments cannot be set off against rental income. The tax-free exemption for the long-term leasing of farmland does not apply to the lease.
VAT will not arise on rental income from such lease agreements unless the landowner elects to be 'vatable' on that particular rental income. In these circumstances, the VAT rate would be 23pc.
In circumstances where the landowner is already registered for VAT, the VAT will not be payable on the income the landowner receives under the lease unless the landowner elects to be 'vatable' on that particular income.
Capital Acquisitions Tax
The major issue that arises on rental agreements involving wind turbines relates to capital acquisitions tax (CAT).
CAT is generally based on the market value of the property acquired.
If 80pc of the gross value of the property belonging to the beneficiary on and after the acquisition can be classified under the legislation as "agricultural property", agricultural relief may apply.
However, when agricultural land is leased to a wind farm, it then becomes commercial property and cannot be classified as agricultural property for tax purposes.
In circumstances where the rental income from the lease is €15,000 per annum, the market value of the lease could be up to €150,000. Thus, the land leased to the wind farm developer is classified as commercial property and the beneficiary will not qualify for agricultural relief unless he/she complies with the 80pc rule.
Neither will it qualify for business relief under the same CAT legislation.
This is a trap that a landowner could quite easily fall into and, when it comes to transferring to the next generation, the beneficiary of the transfer needs to be aware of it.
Richard Rea is an agricultural consultant based in Co Tipperary. Mr Rea can be contacted at 087-2525302 or at firstname.lastname@example.org