The taxation of farming is subject to special rules on account of the seasonal nature of the business and other factors. Formerly, certain farmers were exempted from income tax entirely, when the rateable valuation of their land fell below a certain amount.
Farming includes farming land wholly or mainly for the purposes of husbandry, other than market gardening. The special rules apply only to farming in the State. All farming is treated as a single business and its profits and losses are assessed as those of a single trade.
The Single Farm Payment is subject to income tax. The former exemption from income tax on stallion services was removed as of 2008.
Certain farmers are entitled to elect to be assessed on the basis of average income. Farmers who or whose spouse carry on another business, trade or profession may not avail of the option. Similarly, if the farmer or his spouse is a director of a company, which carries on a trade or is able to control more than 25% of shareholding, the option is not available. There is an exception to this disqualification where the other business consists of the provision of accommodation and certain farmhouse holidays.
The claim to have profits averaged must be specifically made. The averaging is based on the previous three years. Losses and profits are aggregated. It is possible to revert to the normal basis of assessment. Notice must be given and returns must be revised so as to ensure the assessable profits for the two previous years are fully taxed. Even if profits are averaged, capital allowances are granted on the normal basis.
The period of farm income averaging is increased from three years to five years by Finance Act 2014. Income averaging is allowed where a spouse or civil partner carries on another trade in relation to on-farm diversification.
Finance Act 2016 provided that farmers may elect out of the income averaging for a year and pay tax on the basis of actual income. If they do so, they may defer the tax due under averaging until the following year. The election must be made in the tax return for that year.
Where this is done the deferred tax is payable in four instalments as and from the following tax year. The deferred tax is the difference between the tax liability would have been under averaging and what it is under the current year basis.
Finance Act 2018 provides for averaging of farming profits to be availed of by farmers where they, or their spouse or civil partner, carries on another trade or profession or is a director of a company carrying on a trade or profession where they can control more than 25 Per cent of the ordinary share capital of the company. Before that, such farmers were not entitled to avail of the income averaging regime.
Restriction on Losses
There are restrictions on the use of losses in farming. Losses may not be set against all income unless the trade has been carried on a commercial basis with a view to realisation of a profit.
Relief cannot be claimed if losses are made in each of the three previous years. It is possible in some circumstances to show commercial justification as to why there have been three years’ losses, in which event the restriction will not apply.
Stock relief was once available generally to farmers. The relief operates by giving a deduction of one quarter of the increase in stock. Where stock increases, the effect is to reduce the assessable profits.
Until December 2010, a special incentive for certain qualifying young farmers gave 100% stock relief. Broadly, the farmer must qualify under a prescribed scheme for young farmers. They must have or they must hold certain certificates or have taken part in certain courses.
Stock relief for certain farmers was extended to 2015 by the Finance Act 2013. The deduction was allowed for the percentage increase in the value of trading stock between the accounting periods.
Enhancement for Qualifications
Persons who obtain certain farming qualifications in the period 2007 to 2012 are entitled to enhanced stock relief of 100 percent for four years, in place of the standard rate of 25 percent. 100 percent stock relief is given for young trained farmers and continued until the end of 2015.
FA 2012 Act provided for an enhanced stock relief for a period of four years from the date a person becomes qualifying farmer. A qualifying farmer is one within certain categories of young farmer, who hold certain qualifications in agriculture.
Certain farming partnership received temporary 50 percent stock relief (instead of the standard 25 percent) until 2015 only, under FA 2012. The Finance Act No. 2 Act 2013 provides an enhanced stock relief of 100% farmers who have obtained certain designated training and education. The amendment sets out the list of qualifications which may qualify.
The 2013 Act limits the tax deduction to farmers who are registered farm partners and who are entitled to stock relief at 50%. The deduction is restricted to €7500 over three years.
2015 to 2021
Stock relief was extended by the Finance Act 2015 to 2018. Stock relief is at 25% of the increase in stock values and is treated as a trading expense.
An increase of 100% stock relief for a young trained farmer applies. This is subject to a limit of €70,000 in the three year qualifying period and a maximum claim in any year of €40,000. Stock relief for registered farm partnerships based on 50% of increase in stock value applies until the end 2018. Tax relief is restricted to €15,000 over a three-year period.
Finance Act 2018 extended the period for which stock relief is available until 31 December 2021. This includes standard stock relief, stock relief for young trained farmers and stock relief for Registered Farm Partnerships.
Finance Act 2018 made two amendments to take account of EU State Aid requirements in relation to stock relief for young trained farmers and Succession Farm Partnerships. It provides that the aggregate amount of relief granted under sections 667B and 667D of the Taxes Consolidation Act 1997 and section 81AA of the Stamp Duties Consolidation Act 1999 may not exceed the ceiling on aid of €70,000 per young trained farmer as required by EU Commission Regulation 702/2014 of 25 June 2014.
Former Pollution Allowances
There was a farmyard pollution capital allowance scheme which continued to 31st December 2005. 50% of the capital expenditure or €50,000, whichever is lower, was available as an allowance over three years.
A qualifying lessee is amended to include a company that is not connected to the lessor and is not controlled directly or indirectly by any person connected to a qualifying lessor. The definition of qualifying lessor is amended so that reference to the lower age threshold of 40 years is removed.
The exemption applies to the lower of the surplus from farm rental income or €40,000 where the lease is more than 15 years, €30,000 where it is 10 to 15 years, €22,500 where it is seven to 10 years or €18,000 where it is five or six years.
An enhanced rate of stock relief of 100% applies to trained young farmers. This is increased from 25%. The maximum amount of stock relief is €15,000 over three years, increased from €7,500.
Finance Act 2015 provided that the exemption from income tax for qualifying agriculture leases is subject to the following limits, €18,000, lease less than seven years;
- €22,500 – 7 to 10 years;
- €30,000 10 to 15 years;
- €40,000 – more than 15 years.
New anti-avoidance was introduced. Leases between connected persons already do not apply. More complex cross leasing arrangements, where a qualifying lessee is under one lease is a qualifying lessor under another, is targeted.
Registered Farm Partnerships
Provision was made for registered farm partnerships in the Finance Act 2012. The partners must all be active requiring that they spend more than 10 hours in the partnership trade per week. A change in partnership must be notified to the Minister, within 21 days.
A partner may not invest his own farm assets outside the farm partnership, unless they are excluded assets. It includes assets acquired by inheritance or purchase, a licence of farmland owned and leased by one of the partners to the partnership is sufficient evidence that it is a partnership asset.
There is a proximity test by which landholdings used by the partnership may not be more than 75 km apart.
There is relief on disposal of business or farms on retirement from a capital gains tax. Registered farm partnerships are included in farm partnerships for the purpose of retirement relief.
Succession Farm Partnerships I
Succession farm partnerships may be registered. There was a €5,000 tax credit for five years commencing on date of registration as a succession farm partnership. The credit is divided between partners in their profit-sharing ratio. The credit is limited to the lower of the allocated partner tax credit and that partner’s profits after deduction of allowances.
The Minister keeps a register of succession farm partnerships.
The purpose of the credit is to incentivise succession. There are a number of conditions. There must be
- at least two persons, two members, each of whom are persons (not a company).
- at least one partner must have the farming land of more than three hectares for two years beforehand;
- all other partners must be under 40, have a farm qualification and be entitled to at least 30% of the profits.
There must be an agreement to transfer 80% of farm assets in the partnership after three years and within 10 years of formation.
Succession Farm Partnerships II
The partnership agreement must be in writing setting out farm assets, conditions of transfer or sale on succession, timing of asset transfer and other terms including provisions to protect the farmer from being left financially dependent on the State after succession. The partnership business plan must be approved by the Department of Agriculture.
Spouses and civil partners may join us non-active partners and be joint successors. Tax credit ceases on all partnership when any one such successor is over 40 years old at the beginning of the year of assessment.
If farm assets are not transferred within the period, there is a claw back of up to 25% of €125,000 or the lower amount equal to the tax credit claimed by all partners. This is assessed on the farmer unless the successor was unwilling to proceed with the transfer, in which latter case, the successor is assessed. If they both agree not to proceed the partners are assessed proportionately on the amount of relief claimed by each.
There is a right of appeal if the Minister for Agriculture refuses to register, remove or amend details of a farm partnership. It is made to an appeals officer.
Finance Act 2023
The 2023 Act provides a further extension of six agri-tax reliefs that are forms of permissible state aid which are currently due to expire on 30 June 2023, and the required amendment to those reliefs and one other agri-tax relief. The six reliefs were introduced/extended in Finance Act 2022, but it was only possible to provide for/extend them for six- months to end-June at that time, as the revised EU Agricultural Block Exemption Regulation (ABER), had not yet been agreed.
The new Regulation came into effect on 1 January 2023. This has allowed for the extension of the six reliefs in line with the Budget 2023 announcement, and for associated amendments to these reliefs and one other agri-tax relief to reflect the revised rules and requirements of the new Regulation, as well as to provide for transitional arrangements for the coming into effect of those changes.
The 2023 Act provides for the following amendments to five reliefs provided for in the Taxes Consolidation Act 1997 (TCA 1997):
- Extension of Farm Restructuring (CGT) relief (Section 604B of TCA 1997) to 31 December 2025;
- Extension of Young Trained Farmer Stock Relief (Section 667B of TCA 1997) to 31 December 2024;
- Extension of Registered Farm Partnership Stock Relief (Section 667C of TCA 1997) to 31 December 2024;
- Extension and amendment of the publication requirements of the accelerated capital allowance relief for capital expenditure on slurry storage (Section 658A of TCA 1997) to 31 December 2025; and
- The amendment of the publication requirements for the accelerated wear and tear allowances for farm safety equipment (section 285D of TCA 1997).
The amendment of the publication requirements is necessary under the requirements of the revised EU Agricultural Block Exemption Regulation.