Taxation

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Taxation

The information below is general and not a legal interpretation; you should seek independent taxation advice before making any taxation decisions. For full information see the Revenue Website.


Personal taxation


Your personal tax liability is based on the profits you derive from your farm business and on any other income that you have. Farm profit is income less any allowable expenses. You are responsible for making your own assessment of tax due each year and you must keep proper records.

Income tax is charged as a percentage of your income.  The first part of your income, up to a certain cut off point (depending on your circumstances), is taxed at 20%. The remainder of your income is taxed at the higher rate of tax, 40%.

Personal Circumstances
Single, Widowed or a Surviving Civil Partner without qualifying children €33,800 @ 20%, Balance @ 40%
Single, Widowed or a Surviving Civil Partner qualifying for Single Person Child Carer Credit €37,800 @ 20%, Balance @ 40%
Married or in a Civil Partnership – (one Spouse or Civil Partner with income) €42,800 @ 20%, Balance @ 40%
Married or in a Civil Partnership – (both Spouses or Civil Partners with income) €42,800 @ 20% (with an increase of €24,800 max), Balance @ 40%

 

Tax credits

You are entitled to certain tax credits depending on personal circumstances. These tax credits are used to reduce the tax calculated on your income. A new ‘Earned Income’ tax credit of €550 applying to self-employed people including farmers was introduced from January 1, 2016.

For full information see the Revenue website.

USC is payable for all those with an income of €13,000 or more in a year.

With effect from January 1, 2016 the following rates of USC apply:

1% on  all income from 0 up to  €12,012
3% on earnings between  €12,012 and  €18,668
5.5% on any income between   €18,668 and €70,044
8% on any income over €70,044
11% on self-employed income in excess of €100,000

Self-employed people, including farmers, pay Class S PRSI. Payment of PRSI allows you to build up entitlements to social insurance benefits, such as the state contributory pension, maternity benefit, paternity benefit and widow/widower contributory pension.

Self-employed people aged between 16 and 66 pay Class S PRSI of 4% on all income for tax purposes, that is, gross income less allowable expenses. You must pay 4% of all your income or €500, whichever is greater.

If you earn less than €5,000 from self-employment in a year you are exempt from PRSI, but you may pay €500 as a voluntary contributor if you meet the other conditions – details are available here.

Class S contributions only cover you for a limited number of payments. In general they do not cover you for any short-term payments including illness and disability payments. They do not cover you for Jobseeker’s Benefit.

If you satisfy all other conditions, Class S contributions can entitle you to:

The Department of Social Protection has published a leaflet PRSI for the Self-Employed – SW74.

From 2014 ‘assisting spouses’ are eligible to make PRSI contributions and, thereby, to accrue PRSI benefits –  Read about employing family members


Agri-taxation reliefs and exemptions


Income derived from leasing land on a long-term lease may be exempt from tax up to certain thresholds. Leases between close relatives do not qualify and to qualify a lease of farm land must be in writing or evidenced in writing and for a definite term of 5 years or more. The IFA Master Land Lease meets the necessary criteria.

Qualifying lease taken out from 1 January 2007 to 31 December 2014

For periods up to 31 December 2014 an individual aged 40 years or over, or an individual who is permanently incapacitated by mental or physical infirmity from carrying on a trade of farming, may be entitled to an exemption from income tax of certain income arising from leasing of farm land.
The amount of the relief, (subject to the maximum limit) is allowed as follows:

  • €20,000 where the lease / leases are for a term of at least 10 years
  • €15,000 where the lease/ leases are for a term of at least 7 years
  • €12,000 of annual leasing income where the lease/leases are for a term of at least 5 years

Leases entered into on or after January 1, 2015

With effect from 1 January 2015 the age restriction and the requirement to be permanently incapacitated were removed, the amount of income that may be exempted under a qualifying long term lease was increased and a fourth threshold introduced for lease periods of 15 or more years with income of up to €40,000 being exempted.

  • €40,000 where all the qualifying leases are for 15 years or more,
  • €30,000 where all the qualifying leases are for 10 but less than 15 years,
  • €22,500 where all the qualifying leases are for 7 but less than 10 years, and
  • €18,000 where all the qualifying leases are for 5 or 6 years.

For more information see the Revenue website

In Budget 2016 a ‘Family Transfer Partnership’ tax mechanism was introduced which aims to promote farm family succession. This measure is not yet in operation and is subject to EU approval under State Aid rules.

This mechanism was devised in line with IFA proposals and will allow that where family members enter into a partnership arrangement with an appropriate profit-sharing arrangement that provides for the provision of family farm transfer to the younger farmer at the end of a specified period (not exceeding ten years) a tax credit up to a maximum of €5,000 per annum for five years, can be allocated to the partnership, thereby incentivising the transfer and mitigating some of the financial concerns.

Because farm incomes can fluctuate year to year, IFA has negotiated an income averaging system for tax liability. Income averaging is a mechanism that allows farmers to opt to average their tax liability over a period of time.

Instead of being charged to tax on their farming profits in the normal way – on the profits of a 12-month period ending in the year of assessment – individual, full-time farmers may elect to be charged on the basis of the average of the aggregate farming profits and losses over a period. This period was 3 years up until budget 2015 and is extended to 5 years since January 1, 2015.

In Budget 2017, an IFA proposal allowing farmers to opt out of averaging in an exceptional year was introduced. This measure applies from the 2016 tax year and allows farmers on income averaging, in a very poor income year, to pay only the tax due on that current year.  The deferred tax liability will be payable over subsequent years.

Farmers who, or whose spouses, carry on another trade or profession or who are directors of companies which carry on a trade or profession cannot elect for income averaging unless that trade is in relation to on-farm diversification and conducted on the farmland.

For full information see www.revenue.ie

Capital Acquisitions Tax comprises Gift Tax, Inheritance Tax and Discretionary Trust Tax. The standard rate of tax is 33%.

Agricultural relief

CAT Agricultural relief at 90% is available in respect of agricultural property gifted to or inherited by active farmers and to individuals who are not active farmers but who lease out the property on a long-term basis for agricultural use to active farmers. In effect, this means that in such circumstances the market value is reduced by 90% for tax calculation purposes.

Tax-free thresholds for Capital Acquisitions Tax

For the purpose of Gift and Inheritance Tax, the relationship between the person who provided the gift or inheritance and the person who received the gift or inheritance determines the maximum tax free threshold – known as the “group threshold”. Find full details of allowable thresholds here.

Capital Gains Tax (CGT) is chargeable on gains arising on the disposal of assets. For farmers certain reliefs may apply.

Retirement Relief from Capital Gains Tax

Retirement Relief from Capital Gains Tax (CGT) is available where an individual, who is at least 55 years of age (with some exceptions such as chronic ill-health) disposes, by way of sale or gift, of the whole or part of his/her qualifying assets. The amount of retirement relief from CGT available is dependent on whether qualifying assets transferred are parent-to-child transfers or transfers other than to a child

Transfers to a child

Full relief may be claimed by an individual aged 55 – 65 years of age on the disposal of the whole or part of his/her qualifying assets to his/her child. Full relief may be claimed in respect of the consideration for the disposal of qualifying assets worth up to €3 million in the case of individuals aged 66 years or more with effect from the 1 January 2014. Where the consideration exceeds €3 million, relief will be given in respect of the CGT chargeable on any gain accruing on the disposal by individuals aged 66 or more as if the consideration for the disposal had been €3 million. The relief is clawed back where the child disposes of an asset within 6 years of the date of acquisition from his/her parent. For parent to child transfer a child can include a child of a deceased child. Foster child or nephew/niece transfers may also qualify in certain circumstances provided further specific qualifying criteria are met.

Transfers other than to a child

From 1st January 2014 where the disposal consideration does not exceed €750,000, relief from CGT is given in respect of the full amount of tax chargeable on the disposal in the case of an individual aged 55 – 65 years of age. The amount of full relief for individuals aged 66 years or more has been reduced from €750,000 to €500,000. Where the consideration exceeds the thresholds set out above, marginal relief applies so as to limit the amount of tax chargeable to 50% of the difference between the amount of the disposal consideration and €750,000/€500,000 thresholds.

Conacre disposal

Changes introduced in Budget 2015 give farmers who let their land on conacre and who ultimately dispose of their land to a person other than a child a once off opportunity to avail of CGT retirement relief, provided they satisfy the other requirements of the relief, where they either:

  • Dispose of their land on or before 31 December 2016, or
  • Lease their land on or before 31 December 2016 for a minimum period of 5 years (up to a maximum of 25 years) and ultimately dispose of the land.

Restructuring relief

A CGT relief for farm restructuring was introduced in Budget 2013 and initially only permitted the purchase and disposal of outlying parcels from the main farm hub as qualifying transactions. To be eligible for the relief, the sale and purchase of qualifying land(s) must occur within 24 months of each other with the initial sale or purchase of qualifying land taking place in the period 1 January 2013 – December 2019.

Changes announced in Budget 2015 allowed for whole farm replacement, i.e. the disposal of an entire smaller or fragmented farm holding and replacement with a larger or more efficient farm holding. Relief is only available to claimants who are issued with a Farm Restructuring Certificate by Teagasc.

Relief for Transfer of a Site from Parent to Child

An exemption from CGT is available for the disposal of a site from a parent to a child where the transfer is to enable the child to construct a principal private residence on the site. The market value of the site must not exceed €500,000. The area of the site (exclusive of the area on which the house is to be built) must not exceed 0.4 ha or 1 acre. If the child subsequently disposes of the site without having occupied a principal private residence on the site for at least 3 years, then the capital gain which would have accrued to the parent on the initial transfer will accrue to the child in addition to his/her own gain. However, a gain will not accrue to the child where he or she transfers an interest in the site to a spouse or civil partner. This measure is available to both farmers and non-farmers.

There is no obligation on farmers to register for VAT.  In order to compensate for VAT paid on supplies by non-VAT registered farmers, such a farmer is entitled to a flat-rate addition of 5.2% to the prices at which their agricultural produce or agricultural services are supplied to VAT-registered persons including marts, agricultural co-operatives and meat factories.

Unregistered farmers are also entitled to reclaim VAT incurred on capital expenditure on buildings and on land improvements and certain fixed plant items.

Stamp duty – consanguinity relief

Stamp duty consanguinity relief halves the rate of stamp duty payable on transfers of non-residential land to relatives in certain circumstances where the transferor is 65 years or under and the transferee is an active farmer. This is available until December 31, 2017.

Stamp Duty – long term land lease exemption 

In Budget 2015, it was announced that there would be an exemption from stamp duty for leases of 6 years or more, from 1stJanuary. However, this measure is still awaiting EU State Aid approval, and so the requirement to pay 1% stamp duty remains.

Stamp Duty – Young Trained Farmer relief

Stamp duty relief for young trained farmers provides for a total exemption from stamp duty on either the transfer, or purchase, of land where the recipient is a trained farmer under the age of 35 and spends at least 50% of their time farming for the following 6 years and retains ownership of the land for the entire 6 year period.

Stock relief is available only to farming trades and is a relief given in respect of increases in the value of farm trading stock. It is calculated by reference to the increase in value of the stock between the beginning and end of an accounting period.

The relief takes the form of a deduction, to be allowed in computing the trading profits of an accounting period, of 25 per cent of the amount of the increase in value of trading stock at the end of the accounting period.

Income, including grants and premiums, from forestry carried out in the State which is managed on a commercial basis is exempt from income tax but not from PRSI or Universal Social Charge.

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