Farming

If you are a self-employed farmer, your personal tax liability is based on the profits you earn from your farm business and on any other income that you have. Like all self-employed people, you are responsible for making your own assessment of tax (income tax, USC and PRSI etc.) due each year and you must keep accurate records.

You are entitled to the Earned Income Tax Credit which is worth €1,650. This credit can be used to reduce your overall tax liability.

There are a number of other options also available to farmers to reduce their tax liability. These include:

1) Long term land leasing

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 must have a definite term of 5 years or more. Also, your farm land must be in Ireland and the tax relief cannot operate to create a loss.

The profit from the letting of the farm land is assessed as rental income. This relief is given as a reduction (up to a maximum limit) of your total taxable rental income. You will only qualify for one reduction regardless of the number of qualifying leases you may have.

With effect from 1 January 2015 the amount of income that may be exempted under a qualifying long term lease is:

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

2) Succession Farm Partnership Scheme

This scheme is a tax incentive where a farmer and their successor can enter an approved partnership which culminates in the transfer of at least 80% of the farm assets to the successor. The scheme provides for an annual tax credit worth up to €5,000 per annum for a five-year period.

3) Income averaging

Income averaging allows farmers to average their tax liability over a period of time.

Instead of being charged 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 of 5 years (this period was 3 years before 1 January 2015).

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

In 2019, the income averaging regime for farmers is being extended to include farmers who, or whose spouses or civil partners, carry on another trade or profession, or are directors of a company carrying on a trade or profession.

4) Capital Acquisitions Tax - Agricultural Relief

The standard rate of Capital Acquisitions Tax (CAT) is 33%. However, 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 other words, the market value is reduced by 90% for tax calculation purposes.

Additional relief should be added 'Farmer Stock Relief'.

You may be entitled to a tax deduction in respect of increases in the value of your farm trading stock. Stock Relief is calculated by the increase of the trading stock between the beginning and end of an accounting period. The relief takes the form of a deduction from farming profits. 

The relief for farmers is being extended to 31 December 2021. This includes the:

• 25% general stock relief
• 50% stock relief for members of Registered Farm Partnerships
• 100% stock relief for certain Young Trained Farmers.

5) 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 apply to farmers who are over 55 years of age and who owned the land and farmed the land/assets for 10 years prior to disposal. From January 1st 2014, where the current holder is aged over 66 there is a limit of €3m on the total value of the asset transferred on which the full CGT Retirement relief can be gained. The relief can be reclaimed if the child disposes of the asset within 6 years of the date of acquisition.

An exemption from CGT is also 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 and the site area 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 accumulated for 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.

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 is capped at €500,000. Where the thresholds are exceeded, marginal relief applies in order 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.

The relief available is a lifetime amount, i.e. not per sale.

6) Farmer Stock Relief

You may be entitled to a tax deduction in respect of increases in the value of your farm trading stock.

Stock Relief is calculated by the increase of the trading stock between the beginning and the end of an accounting period. The relief takes the form of a deduction from farming profits.

The relief for farmers is being extended to 31 December 2021. This includes the:

• 25% general stock relief
• 50% stock relief for members of Registered Farm Partnerships
• 100% stock relief for certain Young Trained Farmers.