Changes in farm holding structures Long Term leasing / collaborative farming Update on BPS
Growth in Agriculture Huge growth in agriculture Success of Food Harvest 2020 Ireland produces sufficient food for 36million people 25% of infant baby formula in China is sourced from Ireland. Largest exporter of beef in northern hemisphere. Anticipated strong growth in dairy sector with abolition of Milk Quotas Growing number of young well trained, IT savvy Farmers
Age Profile of Farmers Average age late 50 s 7% under 35 60% over 55 Concerns/issues about transferring land to next generation.
Steps taken to improve land mobility and access for new young farmer enterants Strong commitment from Department of Agriculture Irish Farmers Association pushing new structures. Macra na Feirme Land Mobility Scheme 2014 Budget changes following Agri Taxation review Long term Land leasing Collaborative farming
Land Leasing Strong financial incentives- Income Tax and Stamp Duty relief Benefit for landowner / tenant Certainty Investment in land Concerns -. Rights of renewal. Entitlements. Retirement Relief
Important matters to be agreed! Detailed description of premises Reservations to landlords right of way / easements Restrictions on use of the property Tillage / silage / grazing / potatoes Basic Payment Scheme
Concerns about Leasing Right to renewal Most Agri Leases not Commercial Leases If in doubt get tenant to sign waiver (Independent advise!!)
Long Leasing and Income Tax Section 664 Tax Consolidation Act 1997 With effect from 01.01.15 income exempted under a qualifying long lease increased as follows: 40,000 for qualifying leases for 15 years or more 30,000 for qualifying leases for 10 15 years 22,500 for qualifying leases for 7 to 10 years 18,000 for qualifying leases for 5 6 years. Removal of lower age threshold of 40 years Leases must be at arms length Possible to lease to a company provided not connected to the lessor. (Income still subject to PRSI & USC!)
Long Leases Stamp Duty Relief from stamp duty subject to the following conditions 1. Lease must be 6 35 years 2. Land must be used exclusively for farming by the lessee. 3. Land must be farmed on commercial basis with a view to realisation of profits. 4. Can be leased an individual / partnerships / company where main shareholder/director and farms the land. 5. Lessee must have :- Agricultural qualification Farm the land for not less than 50% of normal working time
Long Leases & Stamp Duty Reliefs Consanguinity Relief still available BUT Up to 1.1.16 transfer by parent of any age qualifies 1.1.16 1.1.18 parent must be UNDER 67 Transferee must be:- farmer with qualification Work not less than 50% of normal working time Land farmed on a commercial basis
Retirement Relief and Leases Retirement Relief can apply on disposal of lands to include land that is being let for up to 25 years (increased from 15 years) prior to Disposal. Farmers who had let on con acres were not eligible for retirement relief. Finance Act 2014 are given a once off opportunity to avail of CGT relief provided that : They dispose of the land before the 31 st December or: Leased their land on or before 31 st December 2016 for a minimum for a period of 5 years and ultimately disposed of the land. Overarching requirement for retirement relief is that the lands disposed of must be owned and farmed by the retiring farmer for a period not less than 10 years before the land was leased.
Collaborative Farming Partnership Company Structure Shared Farming Contract Rearing
Farm Partnerships Partnership allows parents work with and bring on their children who want to work in the farm business. Allows the children bring enthusiasm and expertise into the farm business Benefits for registered partnerships / benefits Collaborating farming grant scheme Preferential stock relief Possible preferential treatment for farm schemes Currently only milk production partnerships (MMP s) registered though this now changing
Requirements of registered partnerships One party must be farming in their own right for two years prior to the date partnership up. 2 nd person with required agri qualification Entitled to minimum 20% profit sharing If over 41 has off farm income of less than 40,000
Important points Partnership sets up new entity Importance of comprehensive partnership agreement at the onset Entitlements / land / machinery licensed in partnership All co owners of land must be party to the partnership and maximum number of 10 in a partnership Farms cannot be more than 50 kilometres apart Minimum 5 year terms Department provides farm partnership reference number to the partnership Separate herd numbers maintained Consequences of termination Partnership Act 1894 Provisions under partnership agreement Essential to get legal and taxation advice
Incorporation as a Company High personal tax rates 55% for > 100k Capital allowances exhausted Planned further expansion investment No Capital allowances / high borrowings needed Further restrictions on scope for tax relief on personal pension contributions High personal demand for cash from business
Should I incorporate other issues Company - separate legal entity Profits belongs to Company first Company has its own bank account Company is the farmer not you Company invoices for business expenses Farmer becomes shareholder / director Issues of compliance with company law and Director s duties
Cash / Tax issues to be considered before incorporation You need to be paying top rate tax Ensure all other reliefs/allowances maximised Other off farm income Requirement for high personal drawings young family Future cash flow re profits v drawings More effective to keep the cash within the Company If sustained / increasing business profits If business planning expansion retained earnings can be used to fund this after 12.5% tax
Repaying Debt Sole Trader Pay 41% tax + PRSI + USC before capital repayment To repay 20,000 principal requires 41,666 profit it at top rate Company Pay 12.5% tax before capital repayment To repay 20,000 principle requires 22,857 profit
Transferring assets into company Keep land in owners land and lease Consider keeping appreciating assets out of the company Livestock/ machinery transferring the book value therefore no Stamp Duty If transferred for no payment, directors loan created Consider increasing value of these assets prior to transfer
Payment from Company Directors salary Repayment of company loans Pension payments (generally deductible against company s profits)
Sole Trader v Company Taxation Farm Net Profit 70,000 Drawings 35,000 Spouse income 35,000 Sole Trader Company Tax Payable - Personal Tax 23,181 8,981 - Corp Tax 4,375 Tax Saving 9,825
Company Obligations Directors duties Requirement to register with - CRO - Revenue - Department of Agriculture - Annual accounts to be prepared - Annual accounts filed - Annual tax returns - Separate tax returns for directors
Should I incorporate? NO - If not on upper tax bands - If high demand for personal drawings (young family) - Not planning expansion - High profits not anticipated YES - If cash can be kept within company - Sustain / increasing high business profits - Big business expansion
SHARED FARMING - Typical arrangement involving two parties Landowner provides land/ buildings/ fix equipment. / major upkeep repairs. May provide financial contribution based on entitlements. May provide management/ farm expertise. A shared farmer provides :- Mobile machinery Labour Management farm and expertise They also make contribution based on EU entitlements
Shared farming The shared farmer and landowner agree the following: A budget Annual agree to divide the farm produce Variable / fixed costs to be divided on an agreed basis
What Shared Farming is Contractual arrangement between two independent parties Arrangement should be set out by contract (see Teagasc specified contract) Operates under principal that share farming and land owner though farming same land are separate businesses Based on the principal that parties though farming same land are: Separate businesses Separate income Separate expenses Calculating individual profits Calculate their own profit Responsible for their own tax
And what Shared Farming is not A partnership a lease of the land Employer/ employee relationship Important agreement in place to ensure that actions are not construed within these categories, particularly Partnership, If not to be shared farming serious consequences, vat,cgt, PAYE Strongly recommend professional advice
Contract Rearing Movement of animals form the owner s farm for rearing by contract on another farm Free up land for other production Free up labour Suits farms where accommodation limited Provides monthly cash flow for rearer Reduction in risk Possibly more profitable for rearer Teagasc Agreements:- Flat rate rearing agreement Weight Bonus rearing agreement
Entitlements Single farm scheme replaced by Basic Payment Scheme (BPS) New set of entitlements allocated in 2015 to those legible for allocation under BPS Payment made up of:- BPS Young farmers Greening Protein support Attach to person not land
How is BPS calculated Farmer must have been eligible to receive direct payment in 2013 Continued to be farming in 2015 to trigger allocation
Access to entitlements 2015 Apply for allocation (this is just opened) Be an active farmer Farmer = person who carries out agricultural activity If not agriculture activity, maintain land good agriculture and environmental condition On upland / marginal land minimum activity Farmers who had no SFP 2013 can claim Scottish derogatoion
Transitional Arrangements Transitional arrangements/ inheritance gift/ changes status If entire holding / leased/ sold prior to closing date for applications in scheme year Entitlements cannot be triggered and will be lost If part of holding leased / sold and private contract clause inserted and entitlements can be carried forward to BPS Scheme
Useful Information www.teagasc.ie www.ifa.ie www.macra.ie www.farmersjournal.ie www.agriculture.gov.ie