Revenue advises on opportunity to invest in conacre
On income-averaging, the Budget saw an extension to the period of averaging from three to five years.
On a practical basis, in times of volatility the extended period of averaging should result in a more even level of income subject to tax in each successive year.
Furthermore, the new rules facilitate the use of income averaging for farmers who themselves or their spouses carry on another trade in addition to farming where that trade represents on-farm diversification.
The guide recaps on the new measures increasing the leased land exemption limits for qualifying leases as follows:
€40,000 for leases of 15 years or more,
€30,000 for leases of between 10 and 15 years,
€22,500 for leases between 7 and 10 years, and
€18,000 for leases of 5 or 6 years.
Additionally, these income exemption limits are now available for all land owners regardless of age.
Prior to January 1, 2015, a threshold of 40 years applied, furthermore prior to the turn of the year where a land owner leased land to a farming company, the land owner was not entitled to claim any exemption from income tax, this restriction has now been removed allowing land owners to now lease their land to either an individual, partnership or company and claim the appropriate leased land exemption.
However land owners should remember that leases to certain connected relatives such as from parent to child or from sibling to sibling, and indeed from land owner to a connected company cannot qualify for the leased land exemption.
The Guide also explains that the time extension for Farm Restructuring Relief is moved on a year to December 31, 2016, and the confinement of the relief solely to agricultural land.
Also on capital gains tax, the e extension of retirement relief to former farmers who switch from conacre to leasing is explained.
Up to now a farmer who let their land by conacre disqualified him/herself from a potentially valuable exemption from capital gains tax.
This is of particular relevance where a former farmer intends on transferring their land within their lifetime to a person other than their child, such as a niece or nephew, and also in the case of sales to third parties.
As such farmers who gave up farming and let their land in conacre had left themselves is a state of limbo, many stuck in a situation where they would rather hold onto their farms than transfer or sell as a result of the disqualification from the potentially valuable capital gains tax relief.
The most recent budget has now created a window of opportunity for these landowners to regularise their arrangements allowing a once-off opportunity to avail of CGT retirement relief provided they satisfy the other requirements of the relief including being over 55 at the point of sale or transfer and having farmed and owned the land for 10 years prior to first letting or letting by conacre.
In order to avail of this once-off opportunity the landowners must either:
dispose of their land on or before 31 December 2016, or
switch to leasing their land on or before December 31, 2016, for minimum periods of five years (up to a maximum of 25 years) and ultimately dispose of the land.
Given this generous extension for capital gains tax purposes, coupled in the case of the gifting of land, with the capacity for transferees to avail of agricultural relief for leased land and furthermore the broadening of the leased land income exemption limits, any former farmer who has let their land by conacre should give serious consideration to switching to leasing.
On Agricultural Relief, the guide offers a comprehensive interpretation of the new rules and thankfully irons out many of the potential issues, which cropped up when the new legislation was drafted, more on that in next week’s column.
As always professional tax advice should be obtained as appropriate.
