1. Pension contributions
Contributing to a personal pension plan or PRSA can significantly reduce your taxable income while building a retirement fund. This strategy works particularly well for individuals taxed at the marginal rate of 40%, as they save 40c for every euro contributed. For example, a farmer earning €50,000 who contributes €5,000 to a pension, can save €2,000 in tax. In contrast, those taxed at the standard 20% rate would save €1,000 on the same contribution.
Pensions offer flexibility in contributions, allowing farmers to adjust payments based on annual income levels. For instance, during a year with strong profits, such as a bumper harvest, a farmer can make higher contributions to offset taxable income. Additionally, pensions are not only a tool for personal retirement savings, but can also provide financial security for spouses and dependents through survivor benefits.
When pensions are set up through a company structure, they can reduce corporation tax liabilities significantly. Employer contributions made directly by the farming company are deductible against trading profits, which are taxed at a lower rate of 12.5%. This dual benefit makes pensions a highly effective tax planning tool for both individual farmers and incorporated farming operations. Planning with a tax adviser ensures these strategies align with long-term financial goals, while maximising reliefs.
2. Stock relief
Stock relief is a valuable relief for farmers, as it operates by allowing farmers to claim a deduction on the increased value of livestock in an accounting period. The relief is calculated as follows:
Standard relief – 25%. Farmers operating in a registered farm partnership – 50%.Qualifying young trained farmers – 100%.For example, a farmer with an accounting year end of 31 December has opening stock of €20,000 on 1 January and closing stock of €30,000 on 31 December. The standard relief would provide for an additional deduction €2,500 (€10,000 @ 25%) from the taxable profits.
Farm partnerships
Registering a farm partnership can provide substantial tax benefits, such as facilitating income averaging across partners and sharing costs effectively. Partnerships are particularly useful in succession planning, making it easier to transfer the farm to the next generation. For instance, partners can claim tax credits for qualified successors under the Succession Farm Partnership Scheme, offering up to €5,000 annually. This structure also allows for shared decision-making and a smoother transition of management duties, ensuring the farm’s continuity.
3. Health expenses
Tax relief of 20% is available for non-reimbursed medical costs, including GP visits, prescriptions, and hospital stays. Additionally, nursing home expenses are deductible at the higher marginal rate of 40%, offering significant relief for families managing long-term care costs. For example, if you pay €10,000 in nursing home fees, you could save up to €4,000 in taxes. Keeping detailed receipts and medical invoices ensures you can maximise your claims, providing much-needed financial support during critical times.
4. Capital allowances
Investments in farm machinery, equipment, and buildings can qualify for capital allowances, reducing taxable profits over time. For instance, the cost of a tractor can be deducted over eight years, providing ongoing tax relief. Accelerated capital allowances allow farmers to claim 100% of qualifying expenditure on energy-efficient equipment in the first year. Farm Safety Allowances allow farmers to claim 50% of qualifying expenditure over two years, for upgrades like installing a fixed cattle crush or modernising animal housing. Accelerated capital allowances are also available in respect of slurry storage facilities, farmers can claim 50% of qualifying expenditure over a two-year period, helping to improve cashflow and encourage sustainable practices.
5. Income averaging
This allows farmers to smooth taxable income over five years, mitigating the effects of fluctuating earnings, which are common in farming due to unpredictable factors like weather, market prices, and disease. For example, a farmer might have an exceptionally high income from a bumper harvest one year and a lower income the next due to poor conditions. Without income averaging, the high-income year could place them in a higher tax bracket, resulting in a larger tax bill. By averaging income over five years, the tax liability is spread more evenly, leading to potentially significant savings.
6. Flat rate VAT refund
Farmers not registered for VAT can still claim a 5.1% VAT addition on sales to VAT-registered buyers, simplifying tax recovery for smaller operations. However, this scheme has specific criteria, such as selling only qualifying agricultural goods, which farmers must meet to avoid penalties. For example, a farmer selling €100,000 worth of livestock could claim an additional €5,100 under this scheme. Staying updated on Revenue’s evolving rules and keeping accurate records ensures compliance and maximises the benefit of this addition.
7. Farm buildings and renovations
Like capital allowance under point five, additional allowances are available for costs incurred on the construction of farm buildings, roadways, fencing holdings yards and land reclamation. The cost incurred on qualifying expenditure is claimed over seven years and not fully in the year it is incurred.
While often farmers would prefer to claim the full cost in the year it is incurred, often spreading the costs over the seven years provides greater tax relief, assuming the farmer is paying tax at the higher rate in successive tax years.
8. Education and training
Farmers who invest in further education, such as agricultural courses or certifications, can often claim these expenses as deductions. This also applies to training staff or family members working on the farm. For instance, fees for Green Cert courses or workshops aimed at improving farm productivity can be considered legitimate business expenses, reducing taxable income.
9. Employing family
Hiring family members to work on the farm can provide tax benefits if structured properly. For example, wages paid to a spouse or children for legitimate work done can be deductible, provided the wages are reasonable and align with Revenue guidelines. This approach not only reduces taxable income, but also supports family members financially.
10. Considering a
company structure
Corporation tax is significantly lower than personal income tax rates, currently set at 12.5% for trading profits. Transitioning to a company structure can yield substantial savings, particularly for larger farming operations. For instance, profits retained within the company can be taxed at this lower rate, providing additional capital for reinvestment. Proper planning and advice are essential to ensure that moving to a corporate structure aligns with your long-term goals and complies with tax regulations.
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1.Record-keeping for CGT
Keeping detailed records of acquisition dates, purchase costs and any enhancement expenditure is crucial to reducing future CGT liabilities. For example, if you sell a parcel of farmland, accurate records can help calculate the gain by deducting the original purchase price and qualifying costs, ensuring you only pay tax on the actual profit. Farmers often overlook this, leading to higher than necessary tax bills. Staying organised and retaining documentation will help avoid disputes with Revenue and maximise allowable deductions.
2. Retirement relief
The relief shelters a specified value of qualifying business or farming assets the amount of relief depends on the age of the individual transferring/selling the asset and the relationship between the purchaser/transferee. For the sale/transfer to a person other than a child is €750,000 for individuals that have reached the age of 55, but not yet reached the age of 70. The lifetime threshold reduces to €500,000 once the individual reaches the age of 70.
The thresholds are significantly higher where qualifying assets are transferred to a child. The lifetime threshold for individuals aged between 55 but not yet 70 is €10,000,000. Once the individual reaches the age of 70 the threshold in reduced to €3,000,000.
The conditions for assets to qualify vary depending on the type of asset. For land used for farming, the individual selling/transferring the land must have owned and farmed the land for 10 years prior to the date of sale/transfer.
3. Entrepreneur relief
This relief reduces the rate of CGT from 33% to 10% on first €1,000,000 gain on the transfer/sale of qualifying assets. Unlike retirement relief, there is no age limit to the relief. For farmland to qualify, it must have been a business asset of the individual for three consecutive years in the five years immediately prior to the date of sale/transfer.
4. Principal private residence relief
If you sell your farmhouse alongside farmland, the portion attributable to your primary residence may be exempt from CGT. This ensures that consolidating assets or retiring does not trigger unnecessary taxes.
5. Annual exemption
Each individual can claim an annual CGT exemption of €1,270. Often forgotten, but will save up €419 in CGT.
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1. Agricultural relief
This relief reduces the taxable value of agricultural property by 90%, ensuring farms remain within families. To qualify, the recipient must meet the definition of a “farmer,” meaning 80% of their assets must be agricultural at the date of transfer. For example, the relief would reduce the taxable value of a €1,000,000 farm to €100,000.
2. Group thresholds
Group A thresholds of €400,000 apply to transfers from parents to children, while transfers to grandchildren or children’s spouses fall under Group B and C thresholds, depending on the relationship. Structuring gifts over time allows families to fully utilise these thresholds, minimising tax exposure. For example, a grandparent can gift €40,000 to a grandchild under the Group B threshold without incurring CAT. Thoughtful planning ensures maximum utilisation of all thresholds available across family members.
3. Small gift exemption
The small gift exemption reduces the first €3,000 of every gift received by an individual regardless of relationship in a calendar year. Meaning the same individual can receive multiple gifts from different individuals and the first €3,000 will be exempt from CAT. While €3,000 a year seems small, the quantum effect of the exemption is very beneficial. For example, take a couple with three adult children each in a relationship with two children of their own. The couple can gift €6,000 each year to the following:
Each of their children €18,000 (€6,000 * 3).Each of their children’s partners €18,000 (€6,000 * 3).Each of their grandchildren €36,000 (€6,000 * 6).In the above scenario, the couple could transfer €72,000 a year to the next generations by using the small gift exemption. The small gift exemption is used in priority to the Group thresholds outlined under point two, meaning overtime significant wealth can pass while preserving the Group thresholds.
4. Business relief
Like agricultural relief, business relief reduces the taxable value of qualifying business assets by 90%. For assets to qualify, they must have been business assets of the individual gifting the asset for five years immediately prior to the date of gift, reduced to two years on the inheritance of qualifying assets. Shares in a farming company can qualify for business relief but not agricultural relief. In recent years, with more and more farms operating through companies, business relief has become increasingly important for the succession of farming families.
5. Relief for parents
Generally when we look at succession, we concentrate on the passing of assets from parents to children, unfortunately however, the need arises for assets to pass back to parents – especially in the event of a child’s passing. The relevant threshold for parents receiving a gift from a child is Group B currently at €40,000. In the event of an inheritance received from a child, the relevant threshold moves up to the Group A threshold €400,000. In addition to the increase in threshold, a parent can inherit all assets tax-free from a child once the parent has made a taxable gift to the child in the previous five years of the date of the child’s passing. It is important to note the taxable gift must be in excess of €3,000, to account for the small gift exemption.
\iStock
Final thoughts
Good tax planning starts with solid record-keeping and an understanding of available reliefs. By implementing these strategies and consulting with our tax advisers, you can ensure your farm’s financial health and secure its future for generations to come.
1. Pension contributions
Contributing to a personal pension plan or PRSA can significantly reduce your taxable income while building a retirement fund. This strategy works particularly well for individuals taxed at the marginal rate of 40%, as they save 40c for every euro contributed. For example, a farmer earning €50,000 who contributes €5,000 to a pension, can save €2,000 in tax. In contrast, those taxed at the standard 20% rate would save €1,000 on the same contribution.
Pensions offer flexibility in contributions, allowing farmers to adjust payments based on annual income levels. For instance, during a year with strong profits, such as a bumper harvest, a farmer can make higher contributions to offset taxable income. Additionally, pensions are not only a tool for personal retirement savings, but can also provide financial security for spouses and dependents through survivor benefits.
When pensions are set up through a company structure, they can reduce corporation tax liabilities significantly. Employer contributions made directly by the farming company are deductible against trading profits, which are taxed at a lower rate of 12.5%. This dual benefit makes pensions a highly effective tax planning tool for both individual farmers and incorporated farming operations. Planning with a tax adviser ensures these strategies align with long-term financial goals, while maximising reliefs.
2. Stock relief
Stock relief is a valuable relief for farmers, as it operates by allowing farmers to claim a deduction on the increased value of livestock in an accounting period. The relief is calculated as follows:
Standard relief – 25%. Farmers operating in a registered farm partnership – 50%.Qualifying young trained farmers – 100%.For example, a farmer with an accounting year end of 31 December has opening stock of €20,000 on 1 January and closing stock of €30,000 on 31 December. The standard relief would provide for an additional deduction €2,500 (€10,000 @ 25%) from the taxable profits.
Farm partnerships
Registering a farm partnership can provide substantial tax benefits, such as facilitating income averaging across partners and sharing costs effectively. Partnerships are particularly useful in succession planning, making it easier to transfer the farm to the next generation. For instance, partners can claim tax credits for qualified successors under the Succession Farm Partnership Scheme, offering up to €5,000 annually. This structure also allows for shared decision-making and a smoother transition of management duties, ensuring the farm’s continuity.
3. Health expenses
Tax relief of 20% is available for non-reimbursed medical costs, including GP visits, prescriptions, and hospital stays. Additionally, nursing home expenses are deductible at the higher marginal rate of 40%, offering significant relief for families managing long-term care costs. For example, if you pay €10,000 in nursing home fees, you could save up to €4,000 in taxes. Keeping detailed receipts and medical invoices ensures you can maximise your claims, providing much-needed financial support during critical times.
4. Capital allowances
Investments in farm machinery, equipment, and buildings can qualify for capital allowances, reducing taxable profits over time. For instance, the cost of a tractor can be deducted over eight years, providing ongoing tax relief. Accelerated capital allowances allow farmers to claim 100% of qualifying expenditure on energy-efficient equipment in the first year. Farm Safety Allowances allow farmers to claim 50% of qualifying expenditure over two years, for upgrades like installing a fixed cattle crush or modernising animal housing. Accelerated capital allowances are also available in respect of slurry storage facilities, farmers can claim 50% of qualifying expenditure over a two-year period, helping to improve cashflow and encourage sustainable practices.
5. Income averaging
This allows farmers to smooth taxable income over five years, mitigating the effects of fluctuating earnings, which are common in farming due to unpredictable factors like weather, market prices, and disease. For example, a farmer might have an exceptionally high income from a bumper harvest one year and a lower income the next due to poor conditions. Without income averaging, the high-income year could place them in a higher tax bracket, resulting in a larger tax bill. By averaging income over five years, the tax liability is spread more evenly, leading to potentially significant savings.
6. Flat rate VAT refund
Farmers not registered for VAT can still claim a 5.1% VAT addition on sales to VAT-registered buyers, simplifying tax recovery for smaller operations. However, this scheme has specific criteria, such as selling only qualifying agricultural goods, which farmers must meet to avoid penalties. For example, a farmer selling €100,000 worth of livestock could claim an additional €5,100 under this scheme. Staying updated on Revenue’s evolving rules and keeping accurate records ensures compliance and maximises the benefit of this addition.
7. Farm buildings and renovations
Like capital allowance under point five, additional allowances are available for costs incurred on the construction of farm buildings, roadways, fencing holdings yards and land reclamation. The cost incurred on qualifying expenditure is claimed over seven years and not fully in the year it is incurred.
While often farmers would prefer to claim the full cost in the year it is incurred, often spreading the costs over the seven years provides greater tax relief, assuming the farmer is paying tax at the higher rate in successive tax years.
8. Education and training
Farmers who invest in further education, such as agricultural courses or certifications, can often claim these expenses as deductions. This also applies to training staff or family members working on the farm. For instance, fees for Green Cert courses or workshops aimed at improving farm productivity can be considered legitimate business expenses, reducing taxable income.
9. Employing family
Hiring family members to work on the farm can provide tax benefits if structured properly. For example, wages paid to a spouse or children for legitimate work done can be deductible, provided the wages are reasonable and align with Revenue guidelines. This approach not only reduces taxable income, but also supports family members financially.
10. Considering a
company structure
Corporation tax is significantly lower than personal income tax rates, currently set at 12.5% for trading profits. Transitioning to a company structure can yield substantial savings, particularly for larger farming operations. For instance, profits retained within the company can be taxed at this lower rate, providing additional capital for reinvestment. Proper planning and advice are essential to ensure that moving to a corporate structure aligns with your long-term goals and complies with tax regulations.
\iStock
1.Record-keeping for CGT
Keeping detailed records of acquisition dates, purchase costs and any enhancement expenditure is crucial to reducing future CGT liabilities. For example, if you sell a parcel of farmland, accurate records can help calculate the gain by deducting the original purchase price and qualifying costs, ensuring you only pay tax on the actual profit. Farmers often overlook this, leading to higher than necessary tax bills. Staying organised and retaining documentation will help avoid disputes with Revenue and maximise allowable deductions.
2. Retirement relief
The relief shelters a specified value of qualifying business or farming assets the amount of relief depends on the age of the individual transferring/selling the asset and the relationship between the purchaser/transferee. For the sale/transfer to a person other than a child is €750,000 for individuals that have reached the age of 55, but not yet reached the age of 70. The lifetime threshold reduces to €500,000 once the individual reaches the age of 70.
The thresholds are significantly higher where qualifying assets are transferred to a child. The lifetime threshold for individuals aged between 55 but not yet 70 is €10,000,000. Once the individual reaches the age of 70 the threshold in reduced to €3,000,000.
The conditions for assets to qualify vary depending on the type of asset. For land used for farming, the individual selling/transferring the land must have owned and farmed the land for 10 years prior to the date of sale/transfer.
3. Entrepreneur relief
This relief reduces the rate of CGT from 33% to 10% on first €1,000,000 gain on the transfer/sale of qualifying assets. Unlike retirement relief, there is no age limit to the relief. For farmland to qualify, it must have been a business asset of the individual for three consecutive years in the five years immediately prior to the date of sale/transfer.
4. Principal private residence relief
If you sell your farmhouse alongside farmland, the portion attributable to your primary residence may be exempt from CGT. This ensures that consolidating assets or retiring does not trigger unnecessary taxes.
5. Annual exemption
Each individual can claim an annual CGT exemption of €1,270. Often forgotten, but will save up €419 in CGT.
\iStock
1. Agricultural relief
This relief reduces the taxable value of agricultural property by 90%, ensuring farms remain within families. To qualify, the recipient must meet the definition of a “farmer,” meaning 80% of their assets must be agricultural at the date of transfer. For example, the relief would reduce the taxable value of a €1,000,000 farm to €100,000.
2. Group thresholds
Group A thresholds of €400,000 apply to transfers from parents to children, while transfers to grandchildren or children’s spouses fall under Group B and C thresholds, depending on the relationship. Structuring gifts over time allows families to fully utilise these thresholds, minimising tax exposure. For example, a grandparent can gift €40,000 to a grandchild under the Group B threshold without incurring CAT. Thoughtful planning ensures maximum utilisation of all thresholds available across family members.
3. Small gift exemption
The small gift exemption reduces the first €3,000 of every gift received by an individual regardless of relationship in a calendar year. Meaning the same individual can receive multiple gifts from different individuals and the first €3,000 will be exempt from CAT. While €3,000 a year seems small, the quantum effect of the exemption is very beneficial. For example, take a couple with three adult children each in a relationship with two children of their own. The couple can gift €6,000 each year to the following:
Each of their children €18,000 (€6,000 * 3).Each of their children’s partners €18,000 (€6,000 * 3).Each of their grandchildren €36,000 (€6,000 * 6).In the above scenario, the couple could transfer €72,000 a year to the next generations by using the small gift exemption. The small gift exemption is used in priority to the Group thresholds outlined under point two, meaning overtime significant wealth can pass while preserving the Group thresholds.
4. Business relief
Like agricultural relief, business relief reduces the taxable value of qualifying business assets by 90%. For assets to qualify, they must have been business assets of the individual gifting the asset for five years immediately prior to the date of gift, reduced to two years on the inheritance of qualifying assets. Shares in a farming company can qualify for business relief but not agricultural relief. In recent years, with more and more farms operating through companies, business relief has become increasingly important for the succession of farming families.
5. Relief for parents
Generally when we look at succession, we concentrate on the passing of assets from parents to children, unfortunately however, the need arises for assets to pass back to parents – especially in the event of a child’s passing. The relevant threshold for parents receiving a gift from a child is Group B currently at €40,000. In the event of an inheritance received from a child, the relevant threshold moves up to the Group A threshold €400,000. In addition to the increase in threshold, a parent can inherit all assets tax-free from a child once the parent has made a taxable gift to the child in the previous five years of the date of the child’s passing. It is important to note the taxable gift must be in excess of €3,000, to account for the small gift exemption.
\iStock
Final thoughts
Good tax planning starts with solid record-keeping and an understanding of available reliefs. By implementing these strategies and consulting with our tax advisers, you can ensure your farm’s financial health and secure its future for generations to come.
This is a subscriber-only article
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