Budget 2015 incorporates 12 new agri-taxation measures which, according to the Government, “represents the most substantial package of this kind ever introduced in a single budget”.
The 12 measures can be synopsised as follows:
1) Increase the income thresholds for relief from leasing income by 50%.
2) Introduce a fourth threshold for lease periods of 15 or more years.
3) Remove the lower age threshold of 40 years of age for eligibility.
4) Allow non-connected limited companies as an eligible lessee.
5) Relieve stamp duty on long-term leases of agricultural land.
6) Target Agricultural Relief from Gift/Inheritance Tax to qualified or full-time farmers or to those who lease land out on a long-term basis.
7) For CGT exemptions (Retirement Relief), extend the eligible letting period for land up to 25 years.
8) As a once-off measure, allow land which has been let by way of con-acre to qualify for relief from capital gains tax where leased or transferred up to the end of 2016,.
9) The extension of Stamp Duty Consanguinity Relief, ie, relief to related persons, on non-residential transfers to the end of 2017.
10) CGT relief for farm restructuring to includes whole-farm replacement, extended to the end of 2016.
11) Income averaging measure has been enhanced by increasing the period from three to five years.
12) Extension to income averaging to facilitate farmers and/or their spouse engaged in an on-farm diversification trade or profession.
Interestingly, the first eight measures are focused exclusively at enhancing and encouraging the transition from a con-acre type system to leasing.
There are significant advantages to both land owner and farmer. On the land owner’s side, the advantages are impressive, generous amounts of rental income can be exempt from income tax, exemptions allow the landowner to pass on their land or indeed sell their land to a third party without capital gains tax, the enhanced succession rules allow a non-active-farmer successor to inherit land with little or no inheritance tax, and new leases are exempt from stamp duty reducing the “cost” of leasing.
However, a host of conditions must be satisfied for landowners to qualify for each of the above exemptions and reliefs, and it is therefore advised that landowners obtain professional advice in this regard.
A small number of specialised farmers may consider leasing to be disadvantageous, such as potato and vegetable growers who typically need to rotate plantings to fresh fields in order to avoid cropping problems. But, for the majority of farmers, a move from con-acre to leasing may give some stability, in terms of land rental charges, but most importantly in terms of enabling a farmer to expand their business in a sustainable and secure way.
The traditional fears of being locked into high or low land rents can be remedied by tailoring a lease agreement to include regular rent reviews, or the linking of the rental charge to, say, the annual price of milk or barley.
Sifting through the report prepared by the working group charged with undertaking the Agri-Taxation Review which was published simultaneously with the Budget, it seems that practically all measures suggested by the working group have been adopted.
Listed above are 12 of the 25 recommendations, the remaining points are suggestions for the retention of existing reliefs such as maintaining Retirement Relief from Capital Gains Tax at current levels, and retaining the current Capital Allowances regime and retaining current Stock Reliefs.
As such, the latest moves in the Budget effectively satisfy the recommendations of the working group, both in terms of retention of existing reliefs but also in terms of making some select new tax changes.
It comes as no surprise that the findings of the Agri-Taxation group are those same measures adopted by the Department of Finance and the Department of Agriculture, given that the Agri-Taxation review group was essentially made up of officials from both.
However, the Agri-Taxation Review report does point to some future evaluations required around the feasibility of a risk deposit scheme, such as France’s answer to volatility of income for farmers, and also evaluation of a “Phased Transfer Partnership” model, this being a nod to the useful suggestion offered by the IFA for transitioning farms to new entrants over a period of time.
As part of the process, Indecon were commissioned to provide an independent review of tax reliefs available to the farming sector, a cost-benefit analysis and a summary of international experience. Their report, which accompanies the Agri-Taxation-Review report, provides a useful insight into a variety of suggestions, which in some cases have unfortunately not progressed into recommendations.
Finer details of the Indecon Report will follow here in the coming weeks.