Question: A great opportunity has come my family’s way. We have been approached by a solar company that wants to lease our land.
They’re looking to lease all of the land, which I was delighted with at first, but in the past few weeks, I’ve had mixed advice on this. Some people are saying that I shouldn’t sign an option for more than 50% of the land.
I’m eager to go down the solar route and am really interested in this proposal, but they’re looking for a 35-year lease, so I want to make sure I’m making the right decision.
Why is 50% relevant and what are the tax implications around these options?
Answer: It sounds like you’re poised and ready to dive into the world of renewable energy. Leasing your land for a solar project is a good initiative.
However, as it’s a newer type of land leasing, it’s understandable that navigating the tax implications can feel a little daunting and you don’t want to miss anything.
Let’s break it down together, step-by-step.
We’ll divide it into three parts for ease – firstly, tax implications of leasing, secondly, tax implications of selling, should that option arise, and finally, other considerations you should be aware of.
Income tax on lease payments
It’s great to receive lease payments. However, do keep in mind that these payments are considered rental income, which means they’ll be subject to income tax.
The land lease exemption doesn’t apply to solar companies, so you’ll need to declare this income on your annual tax return.
Value-Added Tax (VAT): While the leasing of land is generally VAT-exempt, the installation of the solar panels classifies the land as ‘developed’.
When the land you lease is developed, it will be VAT-able for the first five years, if it is to be sold.
Stamp duty: Stamp duty usually skips over land leases unless the lease term stretches beyond 35 years. If that’s the case, or if it’s considered a long lease under specific conditions, stamp duty might rear its head.
Selling part of the land
While selling isn’t part of your current proposal, it’s good to think about this side of things too, in case the option arises. Capital Gains Tax and VAT are the two things you need to know about, so here’s the top line on both.
Marty Murphy, Head of Tax, Ifac
Capital Gains Tax: Your current focus is on a lease, but there may also be an option to sell, either now or in the future. If you’d be open to this, it’s worth knowing that the proceeds from the sale would be subject to Capital Gains Tax (CGT).
You calculate the gain as the difference between the sale price and your original acquisition cost, adjusted for any capital improvements and allowable expenses. Right now, the CGT rate is 33%.
It’s hard to dress it up as anything positive – think of it as a farewell gift to the Government for all the good times with your land.
On a brighter note, if applicable, retirement relief could potentially reduce this tax to nil or entrepreneur relief could reduce it to 10%.
VAT on sale of land: Typically, the sale of undeveloped land happily skips past VAT collection.
But as the land has been developed, VAT might still gatecrash your sale celebrations.
Other considerations
With the Irish system, there are always other good-to-knows. Here are a few additional tips and insights for your situation.
Revenue recognition: Document absolutely everything. Proper records of transactions, lease agreements and sales contracts will help ensure accurate tax reporting.
This is where a professional tax advisor can be important. They’ll help you optimise your tax efficiency and ensure compliance with all relevant Irish tax laws.
Agricultural relief: Some people have advised you against leasing more than 50% of your land. Let me explain where their thinking is coming from – the 90% tax discount for farmers receiving a gift or inheritance can get tricky, or even lost, if more than 50% of your land is being leased for solar.
Batteries on the land can also create complications, depending on how they’re installed. Be sure to discuss any plans for a solar venture with your successor and succession advisor to ensure this won’t affect your plans from a tax perspective.
Future land use: Like with most tax topics, think long-term. The world of renewable energy is ever-changing, and so are its tax laws. Make sure you stay up-to-date as the area evolves to avoid future surprises.
There’s a lot to consider here but taking these steps will help you navigate the tax maze with confidence. Here’s to your success in contributing to a greener future, whatever option you choose.
Marty Murphy is Head of Tax at Ifac, which is the professional services firm for farming, food and agribusinesses.
Why do people call it a solar lottery? The name has become popular because there’s no real pattern to how land is chosen for a solar farm. A typical solar farm involves land from more than one farmer.It’s all about grid capacity, so you’ll often find solar farms close to each other to make use of infrastructure. The lease options vary by company – it may be 35 years or they may wish to buy land for transformers and batteries.If you have a finance or legal query for our experts, scan the QR code and input your question.
If you have a finance or legal query for our experts, scan the QR code and input your question.
Read more
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Question: A great opportunity has come my family’s way. We have been approached by a solar company that wants to lease our land.
They’re looking to lease all of the land, which I was delighted with at first, but in the past few weeks, I’ve had mixed advice on this. Some people are saying that I shouldn’t sign an option for more than 50% of the land.
I’m eager to go down the solar route and am really interested in this proposal, but they’re looking for a 35-year lease, so I want to make sure I’m making the right decision.
Why is 50% relevant and what are the tax implications around these options?
Answer: It sounds like you’re poised and ready to dive into the world of renewable energy. Leasing your land for a solar project is a good initiative.
However, as it’s a newer type of land leasing, it’s understandable that navigating the tax implications can feel a little daunting and you don’t want to miss anything.
Let’s break it down together, step-by-step.
We’ll divide it into three parts for ease – firstly, tax implications of leasing, secondly, tax implications of selling, should that option arise, and finally, other considerations you should be aware of.
Income tax on lease payments
It’s great to receive lease payments. However, do keep in mind that these payments are considered rental income, which means they’ll be subject to income tax.
The land lease exemption doesn’t apply to solar companies, so you’ll need to declare this income on your annual tax return.
Value-Added Tax (VAT): While the leasing of land is generally VAT-exempt, the installation of the solar panels classifies the land as ‘developed’.
When the land you lease is developed, it will be VAT-able for the first five years, if it is to be sold.
Stamp duty: Stamp duty usually skips over land leases unless the lease term stretches beyond 35 years. If that’s the case, or if it’s considered a long lease under specific conditions, stamp duty might rear its head.
Selling part of the land
While selling isn’t part of your current proposal, it’s good to think about this side of things too, in case the option arises. Capital Gains Tax and VAT are the two things you need to know about, so here’s the top line on both.
Marty Murphy, Head of Tax, Ifac
Capital Gains Tax: Your current focus is on a lease, but there may also be an option to sell, either now or in the future. If you’d be open to this, it’s worth knowing that the proceeds from the sale would be subject to Capital Gains Tax (CGT).
You calculate the gain as the difference between the sale price and your original acquisition cost, adjusted for any capital improvements and allowable expenses. Right now, the CGT rate is 33%.
It’s hard to dress it up as anything positive – think of it as a farewell gift to the Government for all the good times with your land.
On a brighter note, if applicable, retirement relief could potentially reduce this tax to nil or entrepreneur relief could reduce it to 10%.
VAT on sale of land: Typically, the sale of undeveloped land happily skips past VAT collection.
But as the land has been developed, VAT might still gatecrash your sale celebrations.
Other considerations
With the Irish system, there are always other good-to-knows. Here are a few additional tips and insights for your situation.
Revenue recognition: Document absolutely everything. Proper records of transactions, lease agreements and sales contracts will help ensure accurate tax reporting.
This is where a professional tax advisor can be important. They’ll help you optimise your tax efficiency and ensure compliance with all relevant Irish tax laws.
Agricultural relief: Some people have advised you against leasing more than 50% of your land. Let me explain where their thinking is coming from – the 90% tax discount for farmers receiving a gift or inheritance can get tricky, or even lost, if more than 50% of your land is being leased for solar.
Batteries on the land can also create complications, depending on how they’re installed. Be sure to discuss any plans for a solar venture with your successor and succession advisor to ensure this won’t affect your plans from a tax perspective.
Future land use: Like with most tax topics, think long-term. The world of renewable energy is ever-changing, and so are its tax laws. Make sure you stay up-to-date as the area evolves to avoid future surprises.
There’s a lot to consider here but taking these steps will help you navigate the tax maze with confidence. Here’s to your success in contributing to a greener future, whatever option you choose.
Marty Murphy is Head of Tax at Ifac, which is the professional services firm for farming, food and agribusinesses.
Why do people call it a solar lottery? The name has become popular because there’s no real pattern to how land is chosen for a solar farm. A typical solar farm involves land from more than one farmer.It’s all about grid capacity, so you’ll often find solar farms close to each other to make use of infrastructure. The lease options vary by company – it may be 35 years or they may wish to buy land for transformers and batteries.If you have a finance or legal query for our experts, scan the QR code and input your question.
If you have a finance or legal query for our experts, scan the QR code and input your question.
Read more
Money Mentor: navigating succession without agricultural relief
Money Mentor: is joining a company pension scheme worth it?
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