Farm Ireland

Saturday 20 January 2018

how the budget could affect you

Roisn Purcell

The apprehension ahead of the Budget in just three weeks is building fast. All the pointers so far are that this should be the last of the austerity Budgets, but that it will still involve tax increases and cuts to spending of €3.1bn.

Everyone in this country has borne the brunt of tax increases in recent years, with income tax rate increases, the introduction of the Universal Social Charge, property taxes and reductions in tax bands and credits.

The farming sector, which is made up mainly of self-employed individuals, has borne more than its fair share of these tax increases.

For this reason farmers will be listening to the Budget on October 15 in the hope that there will be no further increases in income tax rates, no changes to tax bands/credits and in particular that the much talked about potential increase in PRSI for self-employed individuals will not become a reality.

Although nothing is certain at this point, we have taken a look at the key tax areas relevant to the farming industry.

Until October 15, we can only hope that the value of the agribusiness sector will be appreciated by the Government.

Young farmers

In order for the farming sector to flourish it is crucial that more get involved in farming from a young age. Younger farmers may have more time and energy to plan for the future and to focus on developing their farm into a thriving business.

Also Read

Succession planning and the transfer of farms from the older generation plays a crucial role here and taxation is vital in facilitating such transfers.

With this in mind, many farming families will be very anxious that there is no change to the current Capital Acquisitions Tax (CAT) agricultural relief.

This relief applies so that the value of the farm assets can be reduced by 90pc and the transaction may be covered or partially covered by lifetime gift/inheritance tax thresholds.

CAT increased in recent years to 33pc together with a reduction in lifetime tax-free thres-holds to the current level of €225,000.

The general consensus is that any further restrictions in CAT or increases in CAT or CGT rates would be detrimental to succession planning for younger farmers, and would have the potential to have a knock-on effect for the industry as a whole.

The tax-free threshold has already been reduced from a high of €542,000 in 2009. When inflation is factored in, the current level is quite close to the lowest level that has ever been in place.

For this reason, I feel that it is unlikely that this will be an obvious target for a further hit.

Planning for growth

The abolition of milk quotas in 2015 will provide dairy farmers with an exciting opportunity. They need to plan for this and tax issues are paramount in making these plans.

If farm profits increase, the preservation of farm averaging into 2015 and beyond will be crucial in managing the tax liabilities payable on potentially higher profits.

The past five years are a good example of this, where returns varied hugely from year to year. As every farm business knows, having a good year on paper rarely translates into extra money in the bank, certainly in the short-term.

So even if profits are showing to be 50pc higher than normal, income averaging protects you from a sudden spike in your tax bill.

To prepare for growth, stock relief will become more important. The requirement to build up herd size will be on the agenda of many dairy farmers over the next few years.

Many are understandably anxious that the 25pc stock relief that applies in most cases will be preserved, with the more optimistic hoping that in advance of 2015 the rate of stock relief may even increase.

Changes to the rules for getting 100pc stock relief for young qualified farmers were introduced last year.

Apart from an extension of the relief up to December 31, 2015, additional conditions and limitations were to be introduced which were subject to a Ministerial Order.

This relief provides a significant tax advantage for young farmers in the first years of their new enterprise and it would be hoped that the Budget will confirm that the relief is to be continued, ideally without the limitations proposed last year.

Capital expenditure will also be required for new farm assets, so the financing of this expenditure will be a challenge.

Any enhanced tax relief on capital expenditure incurred in advance of 2015 would therefore be welcome.

Currently farm buildings are written off over eight years, but if this was reduced to, say, five years, it would free up more money to fund the general expansion of the business.

Many farmers are considering incorporating their businesses through establishing farm companies. Farming profits in this case are liable to tax at 12.5pc. Incorporating can also help make pension contributions more tax efficient.

There are still some impediments to this, however, including the cessation of farm buildings relief on transferring buildings into a company or the restriction on young trained farmers' stamp duty relief when passing on shares in a farming company.

Changes to these areas to facilitate more incorporations of farming businesses would be welcomed.

Roisin Purcell is a senior tax manager in PwC's Kilkenny office. Email:

Irish Independent

Top Stories