Land Leases, what you need to know
Long term leasing of land and farms is a popular and effective land use collaboration. It is very tax efficient for the landowner and gives the farmer secure use of the land for a defined period.
1. Owner Income Tax Relief
Landowners qualify for Income Tax exemptions on long-term leases.
The relief is per landowner and annual
- Leases 5 or 6 years €18,000
- Leases 7, 8 or 9 years €22,500
- Leases 10 to 14 years €30,000
- Leases 15 years or more €40,000
The lease term must be at least 5 years, the lease must be in an approved form (The Land Mobility IFA template is legally proofed and recommended), the lease must be Revenue Stamped (this is a service provided by Land Mobility).
The tenant farmer must be an active or trained farmer, and the land must be commercially farmed. Many different forms of farm structures presently operate including companies and partnerships, it is important to ensure your lease is with an active farmer. This is something Land Mobility can check including green cert proofing. For Inheritance Tax Reliefs (Agricultural Relief) this is critical.
Only leases where the owners and the tenant farmer are not connected qualify for Income Tax Relief.
The lease must be appropriately constructed, signed by all parties and witnessed, and Revenue Stamped.
2. Stamping The Lease (Revenue Certification)
Stamp Duty applies at a rate of 1% of one year’s rent. Stamping a lease and obtaining a Revenue Cert is required by the farmer tenant if he/she is planning to use the leased land for inter alia
- TAMS
- Securing a Herd Number
- Registered Partnerships
- BISS and other Farm Schemes (According to the Dept of Ag all leases must be stamped for farmers to use the land)
In practice most of the Stamping need and benefit is to the farmer tenant so the stamping obligation should be with them. The Land Mobility Service can organize stamping of a Lease.
If the lease is 6 years or more and the tenant farmer is trained or spends at least 50% of his/her working time farming, stamp duty relief applies meaning no stamp duty may be payable.
3. PSRA
The PSRA was established in 2011, one of its functions is to maintain a register of commercial leases. This register is to cover office, retail, industrial, warehouse, and most agricultural leases.
Further to a lease being Revenue Stamped the tenant farmer will be contacted by the PSRA to register the lease summary details, only minimal details are required so keep it simple.
The Three P’s
As with any collaborative farming arrangement or agreement three key considerations should apply:
The Person
The Person must be right. It must be someone you can work with, that person’s vision for the farm must be compatible with yours. It is important to identify someone who is realistic, has farming ability and has done budgets. Don’t be afraid to check out reputations and talk to people they have worked with before, always inspect each other’s current and recent businesses.
The Price
The Price must be fair, realistic and sustainable. All parties must make a return, and this should be backed up by a proper budget and farm plan. People should be open and be prepared to share this information with confidentiality and respect. Mechanisms and templates exist to link price with farming returns which delivers fairness and avoids complicated price reviews. Chasing the top price or being captivated by price alone is a recipe for disaster.
The Period
The Period or term must be sufficient so that it works for all parties. This is especially relevant where investment is required, the period must be sufficiently long to deliver an adequate return. A longer agreement also gives more security and provides a degree of certainty.
