Leasing out land on a long-term basis has become an attractive option for farmers not only due to the income tax incentives, but also due to the lack of a successor or low profitability on some farms.
According to Teagasc, it is vital for land lessors (owners) and land lessees (the person leasing the land) to consult their legal and tax advisers before signing any lease agreement, which is a contractual document when signed by both parties.
Why lease out the land?
Long-term leasing of land provides an alternative for farmers wishing to fully retire or take a step back. The income tax benefits can be considerable.
What are the main requirements of a Lease?
Any lease should always be in a written format. The lease agreement should suit both the lessor and the lessee, with both parties availing of professional and financial advice before signing.
Land owners who enter into a lease agreement greater than five years with an unconnected person (a connected person is defined as immediate family members) will be able to claim varying levels of tax relief dependant on the actual term. Leases should always be stamped by Revenue (leases greater than six years are stamped at no cost).
The lease must also be registered with the Property Services Regulatory Authority (PSRA). This is the responsibility of the lessee.
Benefits of a formal lease
A signed formal lease will provide the landowner with legal protection in the event of a dispute, such as maintenance and repairs, liability for rates and taxes.It will itemise the length of the lease, annual payment and payment procedure.It will outline details of land use, the upkeep of the land and the liability and other insurance requirements. It usually includes a clause preventing subletting. Having a formal lease in place will avoid potential future disputes.It will outline the treatment of the Basic Payment Entitlements. Issues which may arise if no formal lease is in place
A tenant may acquire rights if they have been in occupation for longer than 20 years.The tenant may acquire an entitlement to a renewed lease, in some cases, if they have not been compensated for any improvements to the property.A tenant having paid no rent for 12 years continuously or more may lodge a claim for squatter’s rights on the land. Income tax and long-term leases – requirements
One of the key requirements to avail of income tax incentives with leasing is that the farmland must be mainly occupied for the purpose of farming. The buildings contained are treated as part of the land and dwellings are excluded. The lease must be greater than five years. The landowner (lessor) must be an individual (not a company) but does not have to be an active farmer. There is no upper age limit and the lessor does not have to resident in Ireland.
The lessee may be an individual or a company, and must farm the leased land on a commercial basis (to make a profit). The lessee cannot be a “connected person” to the lessor, to avail of the tax reliefs. A connected person is defined as immediate family members. A niece or nephew are eligible lessees in these cases.
Landowners who enter into a lease with an unconnected person for greater than five years can avail of varying levels of tax relief depending on the actual term (see table below).
Dear Money Mentor,
I am considering leasing land from my uncle (70) who is unmarried. I know he intends to give me this land in his will. If I lease it from him now will it affect my chances of being designated as a “favourite nephew” with regard to Agricultural relief at a later stage? Regards, Joe
Hi Joe,
You and your uncle need to avail of professional tax advice before you decide to put in place a lease agreement these lands. In my view, yes this may affect you qualifying as a “favourite nephew”, due to the requirements to qualify for agricultural relief. Therefore be sure to get the professional advice in advance’.
Dear Money Mentor,
I am a 69-year-old beef farmer. I have a 10-year lease in place with a neighbour, now in year nine. I am wondering if I extend the lease by a further four years will it affect my tax relief.
Many thanks,
Co Sligo farmer.
Hi,
Any lease is for a definite period so your current lease will expire at the end of year 10. At that point you will need to put a new lease in place for a further four years, if you wish. You will not be eligible for the income tax exemption if you have a lease less than five years. I suggest you put a new lease in place for five years plus, and you can continue to receive the tax free income.
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Leasing out land on a long-term basis has become an attractive option for farmers not only due to the income tax incentives, but also due to the lack of a successor or low profitability on some farms.
According to Teagasc, it is vital for land lessors (owners) and land lessees (the person leasing the land) to consult their legal and tax advisers before signing any lease agreement, which is a contractual document when signed by both parties.
Why lease out the land?
Long-term leasing of land provides an alternative for farmers wishing to fully retire or take a step back. The income tax benefits can be considerable.
What are the main requirements of a Lease?
Any lease should always be in a written format. The lease agreement should suit both the lessor and the lessee, with both parties availing of professional and financial advice before signing.
Land owners who enter into a lease agreement greater than five years with an unconnected person (a connected person is defined as immediate family members) will be able to claim varying levels of tax relief dependant on the actual term. Leases should always be stamped by Revenue (leases greater than six years are stamped at no cost).
The lease must also be registered with the Property Services Regulatory Authority (PSRA). This is the responsibility of the lessee.
Benefits of a formal lease
A signed formal lease will provide the landowner with legal protection in the event of a dispute, such as maintenance and repairs, liability for rates and taxes.It will itemise the length of the lease, annual payment and payment procedure.It will outline details of land use, the upkeep of the land and the liability and other insurance requirements. It usually includes a clause preventing subletting. Having a formal lease in place will avoid potential future disputes.It will outline the treatment of the Basic Payment Entitlements. Issues which may arise if no formal lease is in place
A tenant may acquire rights if they have been in occupation for longer than 20 years.The tenant may acquire an entitlement to a renewed lease, in some cases, if they have not been compensated for any improvements to the property.A tenant having paid no rent for 12 years continuously or more may lodge a claim for squatter’s rights on the land. Income tax and long-term leases – requirements
One of the key requirements to avail of income tax incentives with leasing is that the farmland must be mainly occupied for the purpose of farming. The buildings contained are treated as part of the land and dwellings are excluded. The lease must be greater than five years. The landowner (lessor) must be an individual (not a company) but does not have to be an active farmer. There is no upper age limit and the lessor does not have to resident in Ireland.
The lessee may be an individual or a company, and must farm the leased land on a commercial basis (to make a profit). The lessee cannot be a “connected person” to the lessor, to avail of the tax reliefs. A connected person is defined as immediate family members. A niece or nephew are eligible lessees in these cases.
Landowners who enter into a lease with an unconnected person for greater than five years can avail of varying levels of tax relief depending on the actual term (see table below).
Dear Money Mentor,
I am considering leasing land from my uncle (70) who is unmarried. I know he intends to give me this land in his will. If I lease it from him now will it affect my chances of being designated as a “favourite nephew” with regard to Agricultural relief at a later stage? Regards, Joe
Hi Joe,
You and your uncle need to avail of professional tax advice before you decide to put in place a lease agreement these lands. In my view, yes this may affect you qualifying as a “favourite nephew”, due to the requirements to qualify for agricultural relief. Therefore be sure to get the professional advice in advance’.
Dear Money Mentor,
I am a 69-year-old beef farmer. I have a 10-year lease in place with a neighbour, now in year nine. I am wondering if I extend the lease by a further four years will it affect my tax relief.
Many thanks,
Co Sligo farmer.
Hi,
Any lease is for a definite period so your current lease will expire at the end of year 10. At that point you will need to put a new lease in place for a further four years, if you wish. You will not be eligible for the income tax exemption if you have a lease less than five years. I suggest you put a new lease in place for five years plus, and you can continue to receive the tax free income.
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