Leasing, conacre and the reliefs
If you inherit a farm but won't farm it yourself, a long-term lease to an active farmer can keep your agricultural relief and bring rental income free of income tax. Conacre does neither.
In short
- A written lease of at least 6 years to an active farmer can meet the active farmer test for agricultural relief. Conacre can't.
- Lease income of up to €18,000 to €40,000 a year can be free of income tax, depending on how long the lease runs.
- The income tax exemption needs a written lease of at least 5 years, to someone who isn't a close relative.
- Leases of 6 years or more are exempt from stamp duty, but must still be stamped.
Leasing and agricultural relief
To keep agricultural relief, you must pass the active farmer test for 6 years from the valuation date. You don't have to farm the land yourself. You can lease it instead, in whole or substantially (at least 75% by value), to someone who:
- farms it on a commercial basis, with a view to making a profit
- holds an approved agricultural qualification, or farms for at least half their normal working time
The lease must run for at least 6 years. If the person leasing stops meeting the conditions within the 6 years, the relief can be clawed back.
Why conacre doesn't count
Conacre lets land for the grazing or growing season, usually 11 months. It isn't a lease, so it doesn't meet the active farmer test. It also:
- doesn't qualify for the income tax exemption, so the rent is taxed in full
- gives neither side any security beyond the season
- can affect the owner's capital gains tax retirement relief later on, Teagasc warns
Tax-free lease income
| Length of lease | Income free of income tax, a year |
|---|---|
| 5 to under 7 years | €18,000 |
| 7 to under 10 years | €22,500 |
| 10 to under 15 years | €30,000 |
| 15 years or more | €40,000 |
To qualify, the lease must be in writing, for a definite term of at least 5 years, to someone who farms the land and isn't connected to you. You can't lease to a close relative and claim it, though Teagasc notes a lease from an aunt or uncle to a niece or nephew can still qualify. You only get one exemption, however many leases you have. Where land is owned jointly, each owner can claim, so the amounts can double.
The exemption is from income tax only. USC and PRSI may still be due on the rent.
Stamp duty and paperwork
- A farm lease must be stamped by Revenue. Leases of 6 years or more are exempt from stamp duty. A 5-year lease is charged 1% of the annual rent.
- Payment entitlements can be leased with the land, if the lease sets them out.
- Have a solicitor draw up the lease, so it meets the conditions for both reliefs.
A worked example
Niamh inherits 40 hectares from her father. She works as a nurse and doesn't have a Green Cert. She passes the 80% farmer test, then leases all the land for 10 years to a neighbour who has a Green Cert and farms commercially, at €12,000 a year.
| Active farmer test | Met through the 10-year lease to an active farmer |
|---|---|
| Agricultural relief | Kept, as long as the lease and the neighbour's farming continue for 6 years |
| Income tax on the rent | None: €12,000 is under the €30,000 limit for a 10-year lease |
Had she let the land in conacre instead, she would fail the active farmer test and lose agricultural relief.
Common questions
Does conacre count for agricultural relief?
No. Conacre isn't a lease, so it doesn't meet the active farmer test. You need a lease of at least 6 years to someone who farms the land commercially and holds a qualification or farms at least half their working time.
Is income from leasing farmland tax-free?
Up to €18,000 to €40,000 a year can be free of income tax, depending on whether the lease runs for 5, 7, 10 or 15 years or more. The lease must be in writing and not to a close relative. USC and PRSI may still be due.
How long must a lease be to keep agricultural relief?
At least 6 years from the valuation date, to someone who farms the land commercially and meets the qualification or working time condition.
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