Since only a small percentage of agricultural land is sold annually (CSO 0.3%) and the purchase price of land can be prohibitive from a farming perspective leasing plays an important role in the agricultural land market.
Feedback from Teagasc, Accountants (IFAC and FDC), Revenue (Stamp Duty Returns), and the Dept of Agriculture (Entitlement Leasing) is that Long- term leasing continues to grow and is significant. Teagasc (Gordon Peppard 2020) report Long-term leasing is growing in importance and relevance year on year with the number increasing from 3,290 in 2011 to
10,820 in 2018.
Long-term leasing provides benefit to both landowner and farmer. For landowners, ownership is retained and they benefit from income tax incentives. For farmers, a long-term lease provides security of tenure, freedom to farm, and time to invest.
Long Term Leasing (minimum 5 years and can be considerably longer) 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.
Long Term Leasing – 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
Read More about Tax and Pension Schemes >>
Conditions
- The lease term must be at least 5 years (as need be any extensions).
- The tenant farmer must be an active or trained farmer and the land must be commercially farmed.
- The owners and the tenant farmer must not be connected.
- The lease must be appropriately constructed, signed by all parties and witnessed.
- Allowable lease income for tax relief includes land rent, any infrastructure rent, and BPS/EU Entitlement value (if applicable).
- In practice Revenue need only to be notified of the existence of the lease as part of annual tax returns.
Stamp Duty / Revenue Certification
Stamp Duty applies at a rate of 1% of one years 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
- To secure a Herd Number
- Registered Partnerships
- Other Schemes
In practice the benefit is to the farmer tenant so stamping obligation is with them.
- The Land Mobility Service can organise stamping of a Lease if required.
- 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.
- Stamping can be done online using ROS, when the return is filed ROS issue a Stamp Certificate which can be printed down.
Long Term Leasing – 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. It requires the submission of a commercial lease return; this is an on line return http://www.psr.ie/CL117 The onus is on the tenant farmer to submit this return.
As with any collaborative farming arrangement 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 / 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.
Read more detail from The Land Mobility Service 2023 Booklet >>
For more information the Land Mobility Service can be contacted at info@landmobility.ie
