Revenue clamps down on tax avoidance with long-term land leases

Revenue recently clamped down on land owners avoiding tax by tightening the rules around tax exemptions available on long-term leases on farmland.

Long-term leases have be come increasingly common on the back of attractive tax exemptions announced in 2015.

In Budget 2015, land leasing options were made more attractive through a 50pc increase in the tax reliefs available on lease income.

With a switch in policy focus to land usage as opposed to traditional land ownership, this major policy measure has been put in place to stimulate greater activity in the long-term lease market.

However, Revenue has said that as an anti-avoidance measure to prevent the exploitation of the relief it has included a new rule whereby a lease shall not be a qualifying lease in circumstances where a person effectively swaps land with another person or where the land is farmed, in whole or in part, by the qualifying lessor.

Leasing is where land is leased out by a lessor (landowner) to a lessee (active farmer) for a minimum of five years.

In order to incentivise leasing, the land owner is exempt from income tax on lease rental income up to each exemption limit.

The lease must be in writing and stamped by the Revenue in order for the lessor to avail of the enhanced income tax incentives.

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The lease term and the maximum tax exemption limits are as follows:

  • 5 to 7 year lease equals up to €18,000 rental income per year;
  • 7 to 10 year lease equals up to €22,500 rental income per year;
  • 10 to 15 year lease is equal to €30,000 rental income per year,
  • 15+ year lease is equal to €40,000 rental income per year.

The rental income eligible can include income from both land and entitlements.

The tax reliefs do not apply to leases to a blood relative (wife/son/­daughter/sibling) but are applicable on leases to a niece or nephew.

Although the rental income up to each threshold is income tax exempt, the universal social charge (USC) and PRSI still apply on this lease income.

Dairy expansion has resulted in increased demand for land and more long-term land leases.

Consequently where land improvement investment is required to increase land productivity then long-term leases provide the key for farmers committing to longer term planning and investing.

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