Last week we looked at some straightforward ways to shelter income from tax. It generated plenty of interest, so this week I've outlined some additional measures farmers can take.
One option that may suit is to buy shares in a company that qualifies for any of the remaining tax relief schemes.
Farmers can deduct the cost of their investment from their total income for tax purposes. Some of the schemes detailed below offer up to 41pc tax relief, but the investment will still be subject to capital gains tax if the person eventually sells their shares.
Tax-breaks for Investment in Corporate Trades and the Employment and Investment Incentive scheme (EII) replaced the old Business Expansion Scheme (BES) and Seed Capital Scheme since November 25, 2011.
The schemes provide a tax incentive to private investors to invest medium-term equity capital in companies that would otherwise find it difficult to raise funding.
The relief allows individuals to deduct costs of their qualifying investment from their total income for tax purposes. It should be noted that EII does not shelter income from the Universal Social Charge.
Relief is given as a total deduction from income and the maximum amount which qualifies for relief in any one tax year is €150,000.
Relief is available to each spouse and civil partner, subject to availability of income in their own right. The maximum rate of tax relief for subscriptions for eligible shares is 30pc.
A further 11pc of tax relief may be available at the end of the three-year holding period if the company has increased its number of employees since the investment was made or increased its expenditure on research and development.
If a gain arises on disposal, the individual will be liable to capital gains tax in the normal way, the tax relief obtained being disregarded.
To qualify for the relief:
• The investment must be made in a 'Qualifying Company' which is an unquoted company incorporated and resident in the State or resident in an EEA State carrying on business in Ireland. The scheme is available to the majority of small and medium-sized trading companies subject to specified exceptions.
• The individual must be a 'qualifying individual' who is not connected with the company for two years before and five years after the shares are issued;
• The shares need to be held for a three-year period;
• The shares must be fully paid ordinary shares.
The shares must be issued for the purpose of raising money for a qualifying trade which is being carried on by the company or which it intends to carry on.
A claim for relief must be accompanied by a certificate issued by the company. A precondition for the certificate is to furnish Revenue with a statement to the effect that it satisfies the conditions for relief , confirmed by Revenue.
Investment in films
Relief is provided for an investment made in a qualifying film company. Revenue will issue a certificate that the film may be treated as a qualifying film for the purposes of the tax relief. The main provisions are:
• Relief may be claimed on investments made up to December 31, 2015 by individuals and companies. Investments may be made directly by the investor into a qualifying company;
• Individuals can claim relief at their marginal rate on the full amount of investments up to €50,000 in any one tax year. Where relief cannot be obtained due to an insufficiency of income, the unrelieved amount may be carried forward and claimed in the following year.
• Where shares in a qualifying company are retained for more than one year, the relief claimed on the investment is ignored for capital gains tax purposes on a subsequent disposal of the shares. A loss on disposal is restricted by the amount of the relief.
These tax reliefs are subject to the high-earners restriction. The high-earners restriction limits the amount of reliefs that can be claimed in any one year to €80,000 (or 20pc of the total claimed, whichever is higher), where income is greater than €125,000.
Companies raising finance through any of the schemes normally set a closing date for receipt of applications to join the scheme.
The companies normally also provide further information about their future plans and the use to which the investment will be put.
Disclaimer: Aisling Meehan, Solicitor, Tax Consultant and Nuffield Scholar does not accept responsibility for errors or omissions. E-mail email@example.com