In Ireland the traditional form of land rental agreement is conacre, an eleven-month lease on land that dates back to the 19th century. Despite its popularity the system doesn’t give the best return to landowners on a number of levels. Conacre is tax inefficient, it causes deterioration in land quality over time and is costly to administer especially if annual commission has to be paid to land agents.
Land Leasing and Income Tax Exemption
From January 2015 renting land over 5, 7, 10 and 15 years or more is financially efficient. Incremental tax free allowances are available to landowners on rental income receipts for longer term leases as follows:
- €40,000 where the lease agreement is for 15 years or more
- €30,000 where the lease agreement is for 10 to 15 years
- €22,500 where the lease agreement is for 7 to 10 years
- €18,000 where the lease agreement is for 5-6 years
It is important to be aware this rental income is subject to Pay Related Social Insurance(PRSI) and the Universal Social Charge(USC). For the occupier there is security of tenure and this has an added benefit in that it gives the latter an incentive to invest in longer term management by improving land quality and soil fertility. The land owner is left with a more valuable asset at the end of the lease period. We can draw up these lease agreements and have organised mutually beneficial arrangements for land owners and occupiers.
A second option for longer term land arrangements is share-farming. Private agricultural consultants have been organising share farm arrangements since the mid-1990s. A simple arrangement is where the land owner provides land and the occupier provides machinery and technical input for the share farm agreement. Both parties share the financial management of the operation and divide the value of output based on a pre agreed arrangement. The landowner retains an active interest in the farm and management decisions and the occupier gets longer term access to land which can spread the cost of machinery and equipment over a larger area. We have drawn up several share-farm agreements over the years and each one is different depending on the situation and resources available to both parties.
Basic Payment Scheme
Under the new Basic Payment Scheme(BPS) from 2015 entitlement payments can be transferred to the occupier without jeopardising the landowner’s right to the entitlements at the end of the lease period. Here the landowner must remain an active farmer in 2015, by holding onto one hectare and a corresponding entitlement and making a BPS application. A Private Contract Clause(PCC) needs to be completed for leasing land, to include May 2015 , and a corresponding number of entitlements. These entitlements revert back to the landowner at the end of the lease period. Payments received will qualify for income tax lease exemption.
Geraghty Consulting provide professional advice to land owners and farm occupiers for organising mutually beneficial arrangements that will (1) be tax efficient; (2) improve land quality; and 3) maintain farm entitlements for the land owner.