What tax relief is available on long-term land leases?
This is a long standing relief, designed to encourage longer term leases of farm land. The lease must have a minimum definite term of five years or more to qualify for relief.
There have been a number of modifications to this measure since it was introduced initially in 1985.
With effect from 1 January 2015 the amount of income that may be exempted under a qualifying long term lease has been increased by 50pc and a fourth threshold has been introduced for lease periods of 15 or more years with income of up to €40,000 being exempted.
Where one or more qualifying leases are entered into, some on or after 1 January 2015 and some at any other time (i.e. prior to 1 January 2015) then the amount of the exemption is limited, in aggregation, to the following:
- €18,000 per annum where leases are 5 or 6 years
- €22,500 per annum where leases are 7 but less than 10 years
- €30,000 per annum where leases are for 10 but less than 15 years
- €40,000 per annum where leases are for 15 years or more
For land jointly owned each individual is entitled to a separate maximum reduction of the appropriate amounts listed above against their respective share of the rent from a qualifying lease.
The lower age threshold of 40 years for lessors has been removed and in consequence the reference to lessors who are permanently incapacitated has also been removed.
A qualifying lessee is an individual who is not connected with the lessor (or with any of the lessors if there is more than one).
Effectively this means that a lessor is not entitled to relief where the land is let to family members or family members of their spouse or civil partner.
A company may be an eligible lessee provided it is not connected to the lessor.
It should be noted however that while leases between connected persons are not eligible for the income tax exemption for long-term leases of land, this is balanced by the availability of Agricultural Relief from Capital Acquisition Tax (CAT) and Retirement Relief from Capital Gains Tax (CGT), which help facilitate intergenerational transfers of land.
Since 1 January 2005 lease income can include income from land and standard Single Farm Payment entitlements (note: entitlements are attached to the Herd Number not the land), thus leasing land, the landowner/lessor may negotiate a value into the lease in return for also leasing out the existing entitlements to the farmer/lessee.
However, in situations where a lessor may have lost land in the past, through for example planting forestry or losing a conacre arrangement, the lessor may have stacked or consolidated these entitlements on their herd number which in effect meant they ended up with a higher unit value per entitlement.
It is not open in these instances for the landowner/lessor to then avail of this tax exemption by leasing out such consolidated entitlements on a long-term basis.
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