Being tax efficient is about keeping as much of your hard-earned income as possible, and using earnings from the farm business to reinvest in both the business’s and your future.
As outlined on page 46, the single best way to be both tax efficient and to build savings for the future is to contribute as much as you can – within the allowed limits – to your pension. If the farm business has a strong year, then it makes sense to maximise pension payments.
If your income is pushed into the higher-rate tax bracket during a good year, then pension contributions can significantly reduce your tax bill.
Once your pension is sorted, there are some other tax house-keeping duties which should be attended to each year:
Understand your tax credits and make sure you are getting the allowances you are entitled to every year. Remember a subscription to the Irish Farmers Journal is tax deductible, if you are a farmer.While there are not many personal allowances which can be claimed if you are a pay-as-you-earn (PAYE) worker, remember to keep any receipts for medical expenses incurred during the year – there is a 20% rebate available from Revenue on those. For nursing home expenses, that rises to 40%. If you are married or in a civil partnership and both you and your spouse are working, then make sure you are maximising the use of your joint allowances. Keep on top of specific farm reliefs, such as stock relief, accelerated capital allowances, VAT refunds and capital gains tax relief. Keep an eye on the budget – scheduled for 7 October this year – when new measures can be introduced and old ones amended. For farmers, certain income streams are tax free. Earnings from leasing land to another farmer can be tax free, once certain rules are followed. The lease must be for at least five years and the person leasing the land must engage in farming activity.
There are caps to the tax-free income which can be claimed, ranging from €18,000 for a five-year lease to €40,000 for a 15-year lease. It is worth noting that leases for solar installations are not covered by this tax-free allowance.
The annual payments for forestry plantations are exempt from income tax, as is income from the occupation of woodlands. Income from forestry is subject to PRSI and USC.
While tax efficiency is about paying as little tax as possible, it can more correctly be described as minimising tax payments while maintaining a desired standard of living while making arrangements for the future. For example, if a farmer on the higher rate of tax decides to spend €1,000 on a deductible item for the business, they will save several hundred euro on their tax bill. They will, however, also have several hundred euro less for their other spending needs.
For farmers on the lower rate of tax, the salesman’s pitch that a purchase “can be written off against tax” should carry even less weight. The less money that a farm is earning, the less sense any purchase makes from a purely tax-saving standpoint.
Every potential investment in the farm business should be made on its own merits, and be backed by a solid business plan. The tax implications of spending should form part of the decision when calculating to whether to make an investment or not, rather than have the potential tax saving lead the decision.
Efficient tax planning is also critical from a cash flow perspective. In farming, with its hugely volatile incomes from year to year, tax bills for a good year can arrive during a year when incomes are tight. This was particularly prevalent in 2023, when dairy incomes were low when the tax bills for the strong 2022 came due.
Overall, and to emphasise again, any financial plan will need the input from a professional, qualified adviser. With farm incomes set to be strong this year in many sectors, getting the right plan in place now will help avoid any shocks in the future. If nothing else, the bill from the financial adviser itself will be tax-deductible.
Being tax efficient is about keeping as much of your hard-earned income as possible, and using earnings from the farm business to reinvest in both the business’s and your future.
As outlined on page 46, the single best way to be both tax efficient and to build savings for the future is to contribute as much as you can – within the allowed limits – to your pension. If the farm business has a strong year, then it makes sense to maximise pension payments.
If your income is pushed into the higher-rate tax bracket during a good year, then pension contributions can significantly reduce your tax bill.
Once your pension is sorted, there are some other tax house-keeping duties which should be attended to each year:
Understand your tax credits and make sure you are getting the allowances you are entitled to every year. Remember a subscription to the Irish Farmers Journal is tax deductible, if you are a farmer.While there are not many personal allowances which can be claimed if you are a pay-as-you-earn (PAYE) worker, remember to keep any receipts for medical expenses incurred during the year – there is a 20% rebate available from Revenue on those. For nursing home expenses, that rises to 40%. If you are married or in a civil partnership and both you and your spouse are working, then make sure you are maximising the use of your joint allowances. Keep on top of specific farm reliefs, such as stock relief, accelerated capital allowances, VAT refunds and capital gains tax relief. Keep an eye on the budget – scheduled for 7 October this year – when new measures can be introduced and old ones amended. For farmers, certain income streams are tax free. Earnings from leasing land to another farmer can be tax free, once certain rules are followed. The lease must be for at least five years and the person leasing the land must engage in farming activity.
There are caps to the tax-free income which can be claimed, ranging from €18,000 for a five-year lease to €40,000 for a 15-year lease. It is worth noting that leases for solar installations are not covered by this tax-free allowance.
The annual payments for forestry plantations are exempt from income tax, as is income from the occupation of woodlands. Income from forestry is subject to PRSI and USC.
While tax efficiency is about paying as little tax as possible, it can more correctly be described as minimising tax payments while maintaining a desired standard of living while making arrangements for the future. For example, if a farmer on the higher rate of tax decides to spend €1,000 on a deductible item for the business, they will save several hundred euro on their tax bill. They will, however, also have several hundred euro less for their other spending needs.
For farmers on the lower rate of tax, the salesman’s pitch that a purchase “can be written off against tax” should carry even less weight. The less money that a farm is earning, the less sense any purchase makes from a purely tax-saving standpoint.
Every potential investment in the farm business should be made on its own merits, and be backed by a solid business plan. The tax implications of spending should form part of the decision when calculating to whether to make an investment or not, rather than have the potential tax saving lead the decision.
Efficient tax planning is also critical from a cash flow perspective. In farming, with its hugely volatile incomes from year to year, tax bills for a good year can arrive during a year when incomes are tight. This was particularly prevalent in 2023, when dairy incomes were low when the tax bills for the strong 2022 came due.
Overall, and to emphasise again, any financial plan will need the input from a professional, qualified adviser. With farm incomes set to be strong this year in many sectors, getting the right plan in place now will help avoid any shocks in the future. If nothing else, the bill from the financial adviser itself will be tax-deductible.
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