New ways to farm and the big question of how it should all be taxed
The majority of tax rules dealing with farming exist for near on 50 years and are understood by accountants and tax consultants working with the sector. Still, new forms of occupation of land throw up a variety of issues, writes agricultural tax advisor Kieran Coughlan.
Changing landscapes can mean a changed tax landscape too.
Once upon a time, the Irish landscape was occupied almost exclusively by farmers. There was effectively no distinction between land and farmland.
For rural dwellers, virtually all land that was capable of productive use was put to productive use. Evidence still exists today of land which in the past century has been abandoned.
To the trained eye, there are plenty of areas perched above our coastal cliffs where ditches can be seen, which delineated fields and squares of ground that were once worked. Indeed in some instances, the ridges where potatoes were grown can still be felt underfoot.
These land parcels areas, despite their often steep and dangerous inclinations, were farmed because the land had a productive value and because the land was easily fertilised from the seaweed available at the adjacent shoreline.
As all the field work was performed by hand or with horses the gradient of the fields was less of an issue compared to mechanised equipment, which was to follow in the following century.
The advent of chemical fertiliser, which could be applied further inland thereby displacing the proximity advantage of shorelines strewn with seaweed along with machinery which was unable to travel such terrain, saw the abandonment of these steeper parcels.
In the more mountainous areas of our country, land abandonment can also be seen where headage payments no longer incentivise the carrying of significant flocks of sheep.
A new phenomenon has developed over the past decade with land being acquired specifically for rewilding, the prospect of land abandonment isn’t too far away either, with rewetting just one of the newly added factors potentially undermining productivity.
When famous people such as pop-star Ed Sheeran announce their intentions to rewild as much of the UK as possible, then it’s only a matter of time before such ideas take hold this side of the pond.
Yet other changes to land use are being driven by the demand for the installation of so-called solar ‘farms.’ To sidetrack a little, should we farmers look to have the word “farm” protected to mean land used for the purposes of agriculture, like, for example, the word “milk” to define that product produced from mammary glands as opposed to the likes of oat or almond juice?
In a nutshell, if you’ll excuse the pun, the occupation of space in the countryside is no longer analogous with farming.
What does this mean from a tax perspective? The majority of tax rules dealing with farming exist for near on 50 years and are understood by accountants and tax consultants working with the sector, but new forms of occupation of land throw up a variety of issues.
For example, in the case of land which is rewilded, a question arises as to whether that land is capable of being passed on with agricultural relief as that relief is confined to agricultural property defined as including “agricultural land, pasture and woodland”.
If land is permanently taken out of agricultural production, then does it lose its status of being agricultural land?
Business Relief is not available where the owner of rewilded land is not using the land in the course of their business.
Absent of Agricultural Relief or Business relief, the transfer of such land falls under general rules.
From an income tax perspective, a person receiving Department of Agriculture payments but not actively farming the land is not regarded as carrying on a trade but rather in receipt of miscellaneous income.
Although not yet gaining traction in Ireland, it’s important to ask whether a farmer to selling carbon credits would that income categorised as trading income from a separate trade, as passive income derived from the inactive ownership of property or forming part of the farm income of the business?
Is a lump sum payment derived from future carbon commitments to be treated as a capital gain rather than income?
In the last couple of years, we have seen the Revenue Commissioners expand their guidance notes for Agricultural Relief to deal with farmland partially occupied by solar panels but where at least 50% of the land area remains farmed.
As the landscape is changing, careful consideration as to the tax consequences will be needed.
