If you own farmland and are intending on leasing it out, you may be entitled to income tax relief on some or all of the income earned as a lessor in certain circumstances.
In this blog post, we will go through what are the requirements to qualify for this relief in specific detail.
What Qualifies as Farmland?
Firstly the land in question must meet the definition of farmland. The first prerequisite is that the land should be within the State of Ireland.
The land must be being used entirely for one of the following purposes:
- Normal farming
- Market gardening
- Horse breeding
- Cattle dealing
- Fruit growing
- Or any other use of the land which involves the care, cultivation, and breeding of crops and animals.
If there are any other buildings or structures on the land then these must be used for farming the land to qualify for income tax relief.
What is a Qualifying Lease?
Firstly the relief will only be available to Individuals. If the land is owned by a company then it will not be eligible for relief.
Not every lease will qualify and allow you to claim income tax relief on your farmland rental income. A number of conditions must be satisfied first:
- The Lease must be for a minimum of 5 years
- The individual leasing the farm must be using the farm commercially with the intent to make a profit.
- The monetary terms of the lease must be at an arm’s length basis (i.e at the market rate)
- You cannot swap land with another farmer to avoid tax
- It should be evidenced in writing with a form lease or a memorandum that states the term, names, acres, location, etc
- The lease may not be made with family or connected individuals
How Much Income Tax Can You Save?
The amount of income tax relief you can receive will depend on the term of the lease:
| Lease term | Maximum tax relief per annum |
|---|---|
| 5 – 6 Years | €18,000 |
| 7 – 9 Years | €22,500 |
| 10 – 14 Years | €30,000 |
| 15 Years or More | €40,000 |
In situations where the lease term started in the middle of the year then you must also time apportion the annual tax relief allowance. Similarly, if you have a qualifying lease that covers farmland and some other non-qualifying dwellings you must apportion the income made so you are only claiming relief from that which is derived from the farm.
The lease term must be continuous if you want to qualify for each level of relief. For instance, if you had entered into 2 consecutive 4 years leases with a farmer then this would not qualify for income tax relief.
Final Thoughts
This tax relief may be especially useful for farmers who want to retire but do not have someone pass on their farm too. They will be able to lease their farm for a long term and make sure that it is still looked after and managed, while still bringing in an income to supplement their pension income.
Disclaimer: This blog post is for informational and educational purposes only and should not be construed as financial advice. Please seek the assistance of a accountant/solicitor before entering into any lease agreements.