664 Relief for certain income from leasing of farm land

Summary

This section exempts from income tax certain income arising from leasing of farm land. The amounts may vary depending on when the lease was made. Prior to 1 January 2015 a “qualifying lessor” related to an individual who was aged 40 years or more or was permanently incapacitated by reason of mental or physical infirmity from carrying on a trade of farming and who had not leased the land after 30 January 1985 from a connected person on terms other than terms that would have been included on a lease concluded on an arm’s length basis. With effect from 1 January 2015, the lower age limit of 40 and the reference to permanent incapacity is removed from the definition of a ”qualifying lessor”. In addition, with effect from 1 January 2015 a “qualifying lessee” includes a company. The lessee must not be “connected” (see section 10) with the qualifying lessor or lessors.

Where farm land has been purchased on or after 1 January 2024, a 7-year holding requirement is imposed on a ‘qualifying lessor’.

Where a lease period covers part of a full year, the exemption limit is apportioned on a time basis.

Any increased rent payable under such leases which reflects the fact that an EU CAP Direct Payment Entitlement has been transferred with the land, will be treated as rent from farm land. This means the tax exemption can apply to these amounts also.

Details

Definitions

(1)(a) “EU Basic Income Support for Sustainability” means the scheme administered by the Minister for Agriculture, Food and the Marine under Regulation (EU) 2021/2115 of the European Parliament and of the Council of 2 December 2021.

“farm land”, in addition to its general meaning for income tax purposes as land in the State wholly or mainly occupied for husbandry, also includes farm buildings situated on the land, other than buildings or parts of a building used as dwellings. This extended definition is intended to cater for leases relating to both land and farm buildings covered by the same lease.

“lease”, “lessee”, “lessor” and “rent” derive their meanings from Chapter 8 of Part 4 which deals with the taxation of rental income. Thus, “lease” includes an agreement for a lease and any tenancy, but does not include a mortgage, and “lessee” and “lessor” are construed accordingly. The terms “lessee” and “lessor” include, respectively, the successors in title of a lessee or a lessor. The term “rent” includes any payment in the nature of rent and also any payment made by the lessee to defray the cost of work of maintenance or repairs for which the lessor is responsible.

“own” includes holding a leasehold interest in farm land.

“qualifying lease” is a lease of farm land which —

• is in writing or evidenced in writing,
• is for a definite term of 5 years or more, and
• is made on an arm’s length basis between one or more qualifying lessors and one or more qualifying lessees.

“qualifying lessee” is intended to exclude from relief leases made between family members and near relatives. The lessee must not be “connected” (see section 10) with the qualifying lessor or any one of the qualifying lessors where there is a letting by persons in multiple-ownership of the farm land. The definition ensures that relief is available only if the leased land is actually used by the lessee or lessees for the purposes of a trade of farming.

“qualifying lessor” is an individual who has not leased the land after 30 January 1985 from a connected person other than on an arm’s length basis. In addition, a 7-year holding requirement is imposed so that an individual who purchases farm land must hold that farm land for at least 7 years from the date of the contract to purchase the land.

“relevant lease” is lease of farm land for a definite term of 50 years or more.

“the specified amount” is the maximum exemption allowed. It is the lower of the surplus from the farm rental income or an amount which varies depending on when the qualifying lease was made.

For qualifying leases taken out on or after 1 January 2015, the specified amount is:

• €40,000 in the case of a qualifying lease or leases where the leases/leases are for a definite period of 15 years or more,
• €30,000 in the case of a qualifying lease or leases where the leases/leases are for a definite period of 10 or more years but less than 15 years,
• €22,500 in the case of a qualifying lease or leases where the leases/leases are for a definite period of 7 or more years but less than 10 years, and
• €18,000 in any other case.

Where a lease period covers part of a full year, the exemption limit apportioned accordingly on a time basis.

(1)(aa) The 7-year holding requirement referred to in the definition of ‘qualifying lessor’ applies to farm land purchased by an individual under a contract entered into on or after 1 January 2024 for consideration equal to the market value of the farm land on the date of purchase. It will also apply in circumstances where, instead of purchasing the farm land, the individual is granted a relevant lease of the farm land (i.e. one which is 50 years or greater).

(1)(b) Where one or more qualifying leases are made then the amount of the exemption is limited in aggregate to the maximum specified amount.

Anti-avoidance – 7-year holding requirement

There are a number of anti-avoidance provisions designed to prevent circumvention of the 7-year holding requirement.

Where the farm land is purchased for consideration equal to its market value and transferred to a person connected with the purchaser otherwise than by way of purchase at market value, within seven years of the purchase, the 7-year holding requirement will apply to the individual to whom the land is transferred if it is reasonable to consider that the main purpose, or one of the main purposes, of the transfer is to avoid the 7-year holding requirement. A transfer also includes the grant of a leasehold interest. This will also apply to subsequent transfers within seven years of the original purchase.

(1B) Where, under a scheme or arrangement, an individual acquires the farm land from a company connected with the individual (including by way of acquisition of a leasehold interest) otherwise than by way of a purchase for consideration equal to market value, the 7-year holding rule will apply to the individual acquiring the land if it is reasonable to consider that the main purpose, or one of the main purposes, of the scheme or arrangement is to avoid the 7-year holding rule.

(1C) Where an individual purchases the farm land from an unconnected person at over or under market value, the individual will be treated as having purchased the farm land for a consideration equal to the market value of the land at the date of the purchase and the 7-year holding rule will apply. Where an individual purchases the farm land and exchanges that farm land with another person, the exchanged farm land will be treated as having been purchased for a consideration equal to its market value and the 7-year holding rule will apply.

Exception – 7-year holding requirement

(1D) Where an individual has jointly owned the farm land with his or her spouse or civil partner and that spouse or civil partner dies before the 7-year holding period has expired, and the individual who is the surviving spouse, as a consequence of the death, has to lease the farm land, then they will not be subject to the seven-year holding rule.

The relief

(2) Where the total income of a qualifying lessor consists of rental income chargeable to tax under Case V of Schedule D and includes income from the leasing of farmland let under a qualifying lease, the qualifying lessor is entitled to a deduction which is the lower of the overall Case V income or the specified amount.

(3) Where a husband and wife or civil partners are jointly assessed (section 1017/1031C) or separately assessed (section 1023/1031H) and both are involved in qualifying leasing, each is entitled to a separate exemption. This is arrived at as if they were not married or in a civil partnership. Unused balances of the relief are not, therefore, transferable from one spouse or civil partner to the other.

(4) Where a single qualifying lease covers both farm land and other property, only the rent as is properly attributable to the farm land is to benefit from the exemption.

(5) A Revenue officer may, by notice in writing, call for information from the lessor to enable the officer to determine the amount of relief to be given.

Miscellaneous

(6) The various provisions that apply to the granting of personal allowances and reliefs apply to the deduction.

(7) With effect from 1 January 2005, any payments received by a lessor of farm land to compensate him or her for the loss of any EU CAP Direct Payment Entitlements which have been transferred to the lessee along with the leased land will be treated as rent from farm land. This means that, subject to the overall limits, the exemption can apply to these payments.

Anti-avoidance

(8) As an anti-avoidance measure to prevent the exploitation of relief available under the section, a lease shall not be a qualifying lease in circumstances where a person effectively swaps land with another person or where the land is farmed, in whole or in part, by the qualifying lessor.

Relevant Date: Finance Act 2024