Taxation in Agriculture

Chapter 20. Ireland

Abstract

This chapter contains a description of tax provisions applied to agriculture in 2019, unless otherwise specified. They include taxes on income and profit, property, good and services, environmental taxes, and tax incentives for R&D and innovation.

20.1. Overview

The agri-food sector continues to play a crucial role in Ireland’s economic recovery, with a turnover of EUR 26 billion, contributing 7.8% of GNI and generating 11% of all merchandise exports in 2017. The agri-food sector has performed strongly in recent years with the value of food and drink exports reaching EUR 13.6 billion in 2017, marking growth of over 70% since 2009. The agri-food sector also makes a significant contribution to employment in rural areas accounting for 7.9% of total employment. In 2016, there were 137 500 farms in Ireland with the average farm size of 32.4 hectares. In 2017 the average family farm income was EUR 31 374 with 35% of all farms earning a farm income of less than EUR 10 000, 21% earning a farm income of between EUR 10 000 and EUR 20 000 and 51% of farms households earning income from off-farm sources.

In recognition of its significant role in the economy, and especially the rural economy, there are numerous specific taxation measures aimed at the agriculture sector many of which have been implemented or enhanced since 2015. Tax measures include income smoothing for farmers, capital allowances for on-farm investments, stock relief, tax credits for succession partnerships, stamp duty relief, capital gains tax relief for retirement, lower valuation of agricultural lands and assets for capital acquisition taxes on gifts and inheritances, exemptions from income from leasing farmlands, flat rate compensation for VAT and double tax deductions for the carbon tax on diesel.

Many of the recent changes to the taxation measures for agriculture were as a result of recommendations included in the Agri-Taxation Review (the Review) undertaken in 2014 as a joint initiative between the Department of Agriculture, Food and the Marine and the Department of Finance. The Review provided a solid evidence base for continued assistance to the primary agriculture sector through taxation measures, and provides a clear strategy with specific policy objectives for the future to:

• Increase the mobility and the productive use of land.

• Assist succession.

• Complement wider agriculture policies and schemes, such as supporting:

  • Investment to enhance competitiveness, including assisting new entrant, young trained farmers.

  • Environmental sustainability, including the improvement of farm efficiency.

  • Alternative farming models such as farm partnerships.

  • Responses to increasing income volatility.

In a progress report on the implementation of the recommendations included in the Review published as part of the Budget 2019, it is apparent that almost all of the 25 recommendations have been put in place (Table 20.1).

Table 20.1. Progress in implementing recommendations from the 2014 agri-taxation review

Recommendation	Budget implemented
A. Increase the mobility and the productive use of land
1. Retain Relief for certain income from leasing of farmland.	Retained
2. Increase the income thresholds for relief from leasing income by 50%	Introduced in Budget 2015
3. Introduce a fourth threshold for lease periods of 15 or more years with an exemption for the first EUR 40 000 per annum.	Introduced in Budget 2015
4. Remove the lower age threshold of 40 years of age for eligibility for the long-term leasing tax relief.	Introduced in Budget 2015
5. Allow non-connected limited companies as an eligible lessee for the long-term leasing tax relief.	Introduced in Budget 2015
6. Relieve stamp duty on long-term leases (5 years or more) for agricultural land.	Introduced in Budget 2015, commenced in 2018
7. Raise awareness among landowners of the current reliefs for long-term leasing	Ongoing
B. Assist succession
8. Retain Agricultural Relief from Capital Acquisitions Tax.	Retained
9. Target Agricultural Relief from Capital Acquisitions Tax to qualified or full-time farmers or to those who lease land out on a long-term basis.	Introduced in Budget 2015
10. Retain Retirement Relief from Capital Acquisitions Tax at current levels.	Retained
11. For transfers under Retirement Relief (from capital gains tax), extend the eligible letting period of a qualifying asset to 25 years.	Introduced in Budget 2015
12. For transfers other than to a child under Retirement Relief, as a once-off measure until the end of 2016, allow conarce lettings as eligible.	Introduced in Budget 2015
13. Extend Stamp Duty Consanguinity Relief on Non-Residential Transfers to the end of 2017.	Extended in Budget 2015 and renewed in Budget 2018
14. Retain current stamp duty exemptions on transfers of land.	Retained and renewed in Budget 2016
C. Complement wider agriculture policies and schemes
15. Retain the current Capital Allowances available to the sector.	Retained
16. Retain current Stock Reliefs.	Retained and renewed in Budget 2016
17. Retain Capital Gain Tax relief on farm restructuring, allow whole-farm replacement and extend the measure to the end of 2016.	Changes introduced in Budget 2015 and renewed in Budget 2017
18. Retain as tax exempt, profits or gains from the commercial occupation of woodlands.	Retained
19. Examine the broadening of the scope of Sustainable Energy Authority of Ireland’s (SEAI) ACA scheme to incentivise investment in energy efficient equipment by making it available to non-incorporated businesses.	Introduced in Budget 2017
D. Alternative farming models such as farm partnerships
20. Retain the current measures and review in the context of new partnership register and supports under the Rural Development Programme.	Retained
E. Responses to increasing income volatility
21. Retain and enhance Income Averaging by increasing the period from 3 to 5 years.	Introduced in Budget 2015
22. Allow averaging to be availed of where a farmer and/or their spouse receive income from an on-farm diversification trade or profession.	Introduced in Budget 2015
F. General recommendations
23. Examine the scope for extending income averaging to forestry clear-felling profits.	Forestry income was removed from the ‘High Earners Restriction’ in Budget 2016, thereby negating the need for averaging.
24. The Agri-taxation Working Group should remain in place to monitor the agri-taxation measures and examine other issues arising; and specifically to:
a. Examine the feasibility of introducing a risk deposit scheme	Is being considered
b. Examine the feasibility of introducing a ‘Phased Transfer Partnership’	Introduced in Budget 2017
c. Examine the tax system to determine unintended barriers to female participation	Please see Appendix 5
d. Examine other issues as necessary.
25. The Agri-taxation Working Group should also work to ensure better data collection on costs and benefits.	Ongoing

Source: Budget 2019, Report on Tax Expenditures Incorporating outcomes of certain Tax Expenditure & Tax Related Reviews completed since October 2017, “Progress Implementation Update of the Agri-taxation Review 2014 Report of the Agri-taxation Working Group October 2018”, www.budget.gov.ie/Budgets/2019/Documents/Tax%20Expenditures%20Report%202018%20FINAL%2017.10.18%20(002).pdf.

20.2. Income taxation

If the farmer is the sole trader, profits from farming and capital gains on the disposal of certain assets, are assessable under income tax and capital gains tax. If the trade of farming is in a company, the profits and gains are assessable under corporation tax. The same approach and principles apply to the agro-food industry whether they are a sole trader or a company.

Farmers are able to smooth taxable income over time under the long-standing Income Averaging Farming scheme. From 2015 onwards the period of income averaging has increased from three to five years. For the years of assessment 2016 onwards, a farmer may elect to opt out of the income averaging regime and revert to the normal basis of assessment for a single year. This was introduced to assist in cashflow for exceptional years (once in a five-year period) where income may fall significantly. From 2019 the income averaging measure was extended to include farm families with off-farm income, which is the case for approximately 50% of farm households.

Capital allowances are granted for tax purposes in lieu of a deduction for depreciation for certain expenditure. They effectively allow the write-off of the costs of an asset over a period of time.

Capital Allowance for Farm Buildings and Other Works is available to the agriculture sector to assist with the construction of farm buildings (excluding farm dwellings), fences, farm roadways, holding yards, drains, land reclamation and other ancillary works such as walls, water and electrical installation. Farmers may claim the allowance for capital expenditure from their taxable incomes over a seven year period at a rate of 15% for each of the first six years and 10% in year seven.

The Review recommended the retention of the current capital allowances for the agriculture sector. It also found that there was a positive cost benefit analysis on capital allowances and the econometric analysis concluded that there is a positive relationship between investment and output.

Stock reliefs enable investment and are especially important in supporting young farmers and generational renewal:

• 25% General Stock Relief on Income Tax

• 100% Stock Relief on Income Tax for Certain Young Trained Farmers

• 50% Stock Relief on Income Tax for Registered Farm Partnerships

• Relief for Stock Transfer due to discontinued farming trade.

Stock relief is calculated by the increase of value of the trading stock between the beginning and end of an accounting period. The percentage relief is then deducted from taxable income.

Special tax treatment applies in respect of profits on compulsory disposal of livestock due to statutory disease eradication measures. It allows deferral of the profit from the disposal over four accounting periods and a special 100% stock relief during the deferral period. A farmer may exclude the profits arising from the compulsory disposal from the profits of the accounting period in which the disposal took place. Instead they can elect to spread the profits in equal instalments over four accounting periods immediately after the period in which the profit arises or spread the profits in four equal tranches in the accounting period in which the disposal actually took place and in the three immediately following accounting periods.

Under the Succession Farm Partnership Scheme an annual tax credit of EUR 5 000 is granted for five years to farmers and their successors who have an approved partnership. Under the partnership at least 80% of the farm assets must be transferred to the successor.

Capital gains tax (CGT) is payable on gains made from the sale, gift or exchange of an asset at a rate of 33%. There are certain circumstances where relief from this tax may apply:

Retirement Relief from 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 their qualifying assets. Although the relief is commonly known as “retirement relief” a claimant does not have to retire in order to qualify. Available to non-agricultural businesses also, 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.

Irrespective of the amount of consideration for the disposal, full relief may be claimed by an individual aged 55–65 years of age on the disposal of the whole or part of their qualifying assets to their child. The relief is clawed back where the child disposes of an asset within six years of the date of acquisition from their parent. (Retirement Relief from CGT – Parent to child transfers)

Where the capital gains is less than EUR 750 000, full exemption from CGT is given in respect in the case of an individual aged 55–65 years of age. For individuals aged 66 years or more EUR 500 000 is exempt from the CGT for transactions after 1 January 2014. (Retirement Relief from CGT – Transfers other than to a child)

Capital Gains Tax Relief on Farm Restructuring provides for a rollover relief for farm restructuring and parcel swaps with certain conditions to ensure a more efficient farm holding arises. 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 to December 2019. The conditions attached to the EU State Aid approval also restrict the scope of the CGT relief to agricultural land only. Buildings on the land are not eligible for the relief. Relief is only available to claimants who are issued with a Farm Restructuring Certificate by Teagasc.

Stamp Duty Relief for Farm Consolidation allows for a 1% rate of stamp duty (as opposed to the general rate of 6%) where the land transactions qualify for a “Farm Restructuring Certificate” for the purposes of Capital Gains Tax Relief on Farm Restructuring. A clawback of the relief will apply where the land or part of the land purchased is disposed of or partly disposed of before the end of the five-year holding period. Such a clawback will not occur where the land purchased is compulsorily acquired.

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 EUR 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. If the child subsequently disposes of the site without having occupied a principal private residence on the site for at least three years, then the capital gain which would have accrued to the parent on the initial transfer will accrue to the child in addition to their own gain. This measure is available to both farmers and non-farmers. (Capital Gains Tax Relief for Transfer of a Site from Parent to Child)

Capital Gains Tax Relief for Woodlands applies to the disposal of woodlands. The consideration for the disposal of trees growing on the land is not included in calculating the chargeable gain nor are insurance proceeds received on foot of destruction of or damage or injury to trees by fire or other hazard on such land. The relief applies to individuals only.

20.3. Property taxation

Stamp duty is payable on certain instruments (written documents) that transfer ownership of property or are agreements to transfer ownership of property. Property includes land, buildings, business assets (like goodwill) and shares, stocks and marketable securities (both quoted and unquoted). Subject to certain conditions, it may not be chargeable on transfers between spouses. The general rate for stamp duty is 6% of the selling price for non-residential property.

Full relief from stamp duty applies to the transfer of an interest in agricultural land to Young Trained Farmers who are under 35 years of age and who hold a relevant agricultural qualification. The relief encourages the transfer of land to a younger and better trained generation of farmers. Only agricultural land can qualify for relief. However, agricultural land includes such farm houses and buildings and the land on which they are situated. The transfer of land may be by way of a sale or a gift. A transferee must intend to spend at least 50% of their normal working time farming the transferred land, and retain ownership of that land, for a period of at least five years from the date of execution of the deed of transfer. Relief can be clawed back where ownership of the land is not retained for the required five-year period.

Consanguinity Relief applies for stamp duty is applied to land transfers between related persons (referred to as Stamp Duty – Consanguinity Relief for Family Transfers). A rate of 1% stamp duty applies. In order to qualify a beneficiary must either farm the land for at least six years or lease it for at least six years to someone who will farm it. If the beneficiary is farming the land, they must hold a specified qualification or obtain it within a period of four years from the date they receive the land or spend at least 50% of their time farming land (including this land transfer). If it is leased to someone else to farm, that person must hold a specified qualification or obtain it within a period of four years from the date the beneficiary got the land or spend at least 50% of their time farming land (including this land transfer). The land must be farmed on a commercial basis and there must be an intention to make a profit from it.

Capital Acquisition Tax (CAT) is a tax on gifts and inheritances. Gifts and inheritances may be received up to a set value over a person’s lifetime before having to pay CAT. Once due, it is charged at the current rate of 33%. Certain reliefs are available to the farming sector.

Capital Acquisitions Tax relief is available in respect of gifts and inheritances of agricultural property, subject to certain conditions being satisfied. Designed to ensure productive use of agricultural property the relief operates by reducing the market value of “agricultural property” by 90%, so that gift or inheritance tax is calculated on an amount - known as the “agricultural value” – which is substantially less than the market value. In general, the relief applies provided the beneficiary qualifies as a “farmer”, and has an agricultural qualification or farms the agricultural property for not less than 50% of their normal working time. The agricultural property must also be farmed on a commercial basis and with a view to the realisation of profits

If CGT and CAT are payable on the same event (for example, a gift of land by a parent to a child) any CGT paid by the parent can be used by the child as a credit against their CAT liability. (Capital Gains Tax / Capital Acquisition Tax “same event” relief)

Lower interest rate on instalment payments for Capital Acquisition Tax due on gifts/inheritances of agricultural property are available. It is possible for CAT to be paid in instalments in certain circumstances. This option is available where a beneficiary takes an absolute interest in immovable property and/or a limited interest in any property, whether moveable or immovable. It is also available where a beneficiary takes a gift or inheritance of agricultural property and/or relevant business property which is movable property (e.g. livestock, machinery, stock).

20.4. Tax on goods and services

There are different rates of Value Added Tax (VAT) currently applicable to goods and services. The standard rate of VAT is 23%. A reduced VAT rate of 13.5% applies to fuel (coal, heating oil and gas), electricity, veterinary fees and agricultural contracting services etc. A reduced VAT of 4.8% applies to livestock (excluding chickens). No VAT is charged on basic foodstuffs, fertilisers, vegetable and fruit seeds and large animal feed.

VAT registration is obligatory when annual turnover exceeds or is likely to exceed the VAT thresholds. However, if farmers are engaged solely in agricultural production activities, they are not obliged to register for VAT. In order to compensate farmers for VAT paid on farm supplies, a farmer is entitled to add a flat rate of 5.2% (2019) to the prices at which their agricultural produce or agricultural services are supplied to VAT-registered persons.

From 1 January 2019 farmers can reclaim VAT they have paid on construction or alterations of farm buildings and structures, drainage, land reclamation, hedgerows and underpasses. The farmer cannot be VAT registered and must make the claims within four years.

Tax relief is available to farmers for the increase in carbon tax on farm diesel from May 2012. This is in addition to the already permitted income tax deductibility of costs of green (agricultural) diesel as business expenses. This results in a double tax deduction.

20.5. Environmental taxes

One of the stated objectives of the 2014 Agri-taxation review was to complement agri taxation policy with wider agriculture policies and schemes such as environmental sustainability including farm efficiency. Arising from its recommendations Capital Gains Tax relief on farm restructuring, allowing whole-farm replacement was retained and provides ongoing environmental benefits.

Accelerated capital allowances on capital expenditure are available to companies and unincorporated businesses that incur expenditure on eligible energy-efficient equipment for use in their trade.

20.6. Tax incentives for R&D and innovation

No specific tax incentive for R&D and innovation exists for sole trading farmers. There is however a R&D Tax Credit for all companies in Ireland. The R&D tax credit is calculated at 25% of qualifying R&D expenditure and is used to reduce a company’s corporation tax. Where a company has offset current and previous years’ corporate tax liabilities, it may apply for a credit payable in instalments.

A company may qualify for the R&D Tax Credit if it is within the charge of corporate tax in Ireland; it carries out qualifying R&D activities in Ireland or the European Economic Area (EEA); and the expenditure does not qualify for a tax deduction in another country.

Knowledge Development Box (KDB) is a corporation tax relief whereby eligible companies can deduct 50% of the usual corporate tax rate on profits generated by qualifying assets. To be eligible for the KDB tax relief a company creates a usable qualifying asset from R&D activities that earns income. Qualifying assets include patents, computer programmes and, for smaller companies, certain other certified intellectual property.

20.7. Other taxes

The central taxation system PAYE stands for “Pay As You Earn”. All labour incurs Income Tax (IT), Pay Related Social Insurance (PRSI) and Universal Social Charge (USC) and pays the amount deducted to the Office of the Revenue Commissioners. PAYE ensures that the yearly amounts due are collected evenly on each pay day over the course of the tax year.

There are no special concessions in terms of contributions for farmers, as self-employed or as employers. However, a special scheme is applied to farmers (The Farm Assist Scheme) which is a means tested social insurance scheme for low income farm households.

20.8. Estimates of tax expenditure

Table 20.2. Tax expenditures directed at the agricultural sector, 2012 to 2016

Million EUR and number of claims

Relief	Cost 2012	Claims 2012	Cost 2013	Claims 2013	Cost 2014	Claims 2014	Cost 2015	Claims 2015	Cost 2016	Claims 2016
Stock Relief (Partnerships)*	0.1	30	0.1	30	0.3	30	0.1	60	0.5	360
Stock Relief for YTF*	1.1	280	1.1	310	1.1	280	1.4	460	1.4	500
Stamp Duty Relief for Consanguity*	3.7	2 344	2.0	1 208	3.0	1 796	4.7	2 071	2.1	864
Stamp Duty Relief for YTF*	7.9	1 157	3.8	714	4.7	722	5.2	989	4.6	735
General Stock Relief*	5.2	7 720	5.2	8 950	5.2	9 100	6.1	10 690	6.4	11 010
Exempt Rental Income from Leasing	7.3	3 980	7.3	4 370	9.2	5 130	13.9	6 830	19.4	8 490
Farmer VAT Refunds*	48.3	17 506	50.1	17 095	50.5	16 556	54.4	16 526	55.7	17 666
Capital Gains Tax Retirement Relief (outside family)1	NA	424	NA	341	NA	270	NA	391	NA	391
Capital Allowances Miscellaneous	67.0	11 687	63.0	11 053	62.0	10 704	57.0	9 894	49.0	8 899
Capital Allowances Case Rental Income	63.0	8 132	66.0	8 930	55.0	9 055	42.0	9 324	36.0	9 956
Capital Gains Tax Retirement Relief (within family)1	NA	237	NA	211	NA	234	NA	294	NA	264
Farmer Capital Acquisition Tax Relief*	201.0	1 747	163.0	1 594	164.0	1 581	215.0	2 024	118.0	1 263
Capital Allowances Industrial Buildings	191.0	35 131	190.0	33 158	184.0	33 039	175.0	32 851	167.0	33 168
Capital Allowances Machinery and Plant	396.0	63 312	395.0	64 609	390.0	65 577	376.0	66 738	370.0	69 483
Total cost	991.6		946.6		929.0		950.8		830.1
Total cost agriculture specific	267.3		225.3		228.8		286.9		188.7

Notes: An individual farmer may avail of a number of reliefs, the total figure does not reflect the number of individual farmers but the number of claims made under each relief.

*The table shows total expenditures directed at the agriculture sector were valued at EUR 830 million in 2016. Most of these measures are business reliefs available to all SMEs/sole traders. The table shows that agriculture specific tax measures were valued at EUR 188.7 million in 2016, mainly reliefs aimed at encouraging land mobility and the earlier transfer of family farms.

*Reflects reliefs directed specifically at the agriculture sector, in 2016 the cost of these reliefs amounted to EUR 188.7 million.

1. Revenue cannot provide costings on this as the relevant tax returns does not seek information in respect of the changeable gain.

Source: Budget 2019, Report on Tax Expenditures Incorporating outcomes of certain Tax Expenditure & Tax Related Reviews completed since October 2017, “Progress Implementation Update of the Agri-taxation Review 2014 Report of the Agri-taxation Working Group October 2018” www.budget.gov.ie/Budgets/2019/Documents/Tax%20Expenditures%20Report%202018%20FINAL%2017.10.18%20(002).pdf.