Farm Ireland
Independent.ie

Wednesday 25 April 2018

Tax man: Light relief on tax rates

From left, Paul McCarthy, Teagasc, Brian Carty, ILDN, Peter Young, Farmers' Journal, and entrepreneur John Concannon show off some of the €40,000 prize fund for the JFC innovation awards
From left, Paul McCarthy, Teagasc, Brian Carty, ILDN, Peter Young, Farmers' Journal, and entrepreneur John Concannon show off some of the €40,000 prize fund for the JFC innovation awards

Michael Hough

Stock relief runs out at the end of next month. In the 1980s it applied to several industries, but the IFA managed to hold on to it in a different form for farming. Like so many other measures, there is no certainty that it will remain in place in the upcoming Budget. Therefore, it makes sense to make the most of this relief this year if appropriate.

What is stock?

From a farming point of view, it is seed and fertiliser, harvested crops, livestock and poultry. Growing crops do not count.

How is stock normally handled in my accounts?

For tax purposes, cattle are generally valued at 60pc of their market value in your accounts. Sheep, pigs and harvested crops are valued at 75pc of their market value. This is important if you are availing of stock relief at either the standard 25pc rate or the 100pc rate for depopulations and young farmers.

How does stock relief normally work?

Where the value of stock at the end of the accounting year is greater than the value of the stock at the beginning of the year, the profit is reduced by 25pc of the increase in value. If the stock value decreases, there is no claw back (see table 1).

When does 100pc relief apply?

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The relief is available at 100pc in two scenarios:

  • The young trained farmer -- It is available for a young trained farmer on the increase in the value of all stock. However, the following conditions apply:

(a) He/she must be under 35 years of age;

(b) He/she must start farming before the end of this year;

(c) He/she must be the holder of a FETAC Level 6 qualification or higher certificate in agriculture.

The relief is available for the year he/she starts and the three subsequent years (see table 2).

  • Compulsory disposal of stock -- Where a farmer is required to depopulate due to disease issues, it is likely that he/she will realise a paper profit on the depopulation because stock would have been valued at a 60-75pc basis of its market value at the beginning of the year for tax purposes (see table 3).

The farmer has the right to have this profit taxed in one of three ways:

1. In the year of depopulation;

2. In equal instalments in the year of depopulation and the following three years;

3. In equal instalments in the four years immediately after the year of depopulation.

The relief under this heading entitles the farmer to claim 100pc relief on his/her value of replacement stock up to the amount of the paper profit which is taxed each year. This is provided, of course, that the value of the stock at the end of the year exceeds the value of the stock at the beginning of it by at least that amount of the paper profit taxed in the particular year. If the stock value increase is greater than the paper profit, the normal 25pc rate is available on the excess.

Example

  • Paper Profit €34,000. The farmer elects to have this profit taxed over the four years following depopulation (see table 4).
  • Remember: It is important to understand that the relief cannot be used to create or increase a farm loss. To ensure that the full benefit of the relief is available, the farmer must invest the whole of the compensation in replacement stock.
  • Clarification: Last week we outlined the tax benefits of leasing land over conacre for landowners. It is important to note that while business relief is available on land that has been rented on a conacre basis, it is not available on land that has been leased.

Michael Hough is a tax specialist with Owen Sweetman and Co in Balbriggan, Co Dublin

Irish Independent