Subject to certain conditions, an individual is entitled to certain income tax exemption on leasing farmland. The purpose of the relief is to encourage persons who are in occupation of farm land and who are unable, because of some mental or physical disability, to work the land properly to lease the land to persons who are able to work it.
What conditions apply?
There are certain conditions that must be complied with in order to qualify for this income tax exemption:
First, the land must meet the definition of farmland as outlined in the tax legislation. “Farmland” means land in the State wholly or mainly occupied for the purposes of husbandry and includes a building (but does not include a dwelling house) situated on the land and used for the purposes of farming that land. Use includes market gardening, horse breeding, cattle dealing, fruit growing and any other form of husbandry, intensive or otherwise, which involves the use of the land or its produce.
Second, both parties must enter into a “qualifying lease” of farmland. A qualifying lease is an agreement between a qualifying lessor and lessee (see definitions below) which is:
- in writing or evidenced in writing;
- is for a definite term of five years or more – income received from farmland rented out for under 5 years is not eligible for income tax relief. The term of the lease should be set out in the lease agreement. The legislation is very clear on the term. For instance, a 3 year lease followed by another 3 year lease between the same parties will not entitle the lessor to avail of the exemption; and
- is made on an arm’s length basis – this means that the lease must be made between unconnected parties. As a consequence, a lease granted to immediate family members for example is not eligible for this exemption such as a lease to children, grand children, sisters, brothers, parents, spouse or civil partner. However, a niece or nephew is not considered a connected person for the purposes of obtaining this relief.
Qualifying parties
A qualifying lessor (the owner of the land) should be aged 40 years or over to be eligible to qualify for the tax exemption. However, there is no age limit for lessors who are permanently incapacitated by mental or physical infirmity from carrying on trade of farming.
A qualifying lessee (the person renting the land from the owner) is an individual who is not connected with the lessor and uses the land for the purposes of their farming activities. It is important to note, therefore, that a farmer would not be able to claim this relief where the farmland is let to a company.
Other Schemes
You will be aware of the various Department of Agriculture, Food and Fisheries Schemes that can be applied for. Leased land can also qualify for certain of these schemes such as:
- REPS payments: Land leased for 5 years or longer qualifies for REPS payments
- Installation Aid: Young farmers can qualify for Installation Aid on land they leased for 7 years or longer.
Tax Exemptions
The qualifying lessor is exempt from income tax on the income received under a qualifying lease s follows:
- 5 to 7 year lease = first €12,000 per year
- 7 to 10 year lease = up to €15,000 per year
- 10 years or longer = up to €20,000 per year
Note: jointly-owned land, such as that held by a husband and wife or other joint owners can each qualify for relief.
In certain circumstances the lessee/tenant may have a right to claim renewal of the lease when the lease agreement ends.
For further information on Farm Leases, please Contact Us to arrange a consultation.
