What’s involved in land leasing and what are the benefits?
Long-term land leasing has numerous long term benefits. It can give a new lease of life to an existing farm business on a 11 month rental or conacre agreement.
It could also be used to lease land to an offspring/successor before fully transferring the land a few years later.
Most importantly, it gives security of tenure to the farmer working the land.
What does a land lease involve?
A land lease is a written legal agreement between a landowner (lessor) and an active farmer (lessee) utilising the land.
Thus, involvement of a solicitor that is familiar with land leases and who is acceptable to all parties is hugely important from the outset.
Also, advice from an accountant is advisable. The lease is signed by both parties, witnessed by an independent person and stamped by Revenue.
Details to be included are:
- Length of the lease
- Annual payment and payment procedure
- Details of the land use and the upkeep of the land
- Treatment of Basic Payment Entitlements
- A clause preventing subletting
- The lease must be stamped by Revenue and registered with the Property Registration Authority by the solicitor involved.
- It is important that the lease agreement satisfies the needs of both the lessor and the lessee, e.g. the upkeep of fences or hedges on the farm, payment of water charges etc. The responsibility for this should be clearly stated in the lease.
- One major plus for this legally binding agreement is that it removes the fear of “squatter’s rights” from the land owner’s mind.
Advantages for landowners
Enhanced Tax Relief Incentives
The income tax incentives were enhanced by Revenue and the Department of Agriculture in Finance budgets in recent years, to make leasing more attractive to landowners who did not wish to farm the land themselves, while encouraging landowners to move from conacre to long-term land leasing arrangements.
Income Tax Incentives for Long-term Land Leasing
Some further changes introduced were that land can now be leased for up to 25 years without impacting on the landowner’s right to qualify for retirement relief on Capital Gains Tax.
Limited companies can now qualify the landowner for the income tax incentives.
Payments received under the Basic Payment Scheme and the agreed land lease fee per acre (or per hectare) can be added together as tax free income under the relevant threshold. The landowner must still pay PRSI and USC on this income.
The amount of income involved may determine the length of the lease agreed. If land is co-owned between a husband and wife, the relevant thresholds shown in the table above can be doubled.
To qualify for the income tax incentives, land can only be leased to non-relatives. The only exception to this is the uncle/aunt to favourite nephew/niece relationship – you should check with your solicitor on this.
Providing an opportunity for the lessee to invest in the land
By opting for a long-term lease the landowner is providing the opportunity to the active farmer to invest in the land during the term of the lease.
This means that the land may be better managed and more productive in future years.
Qualify for retirement relief on transfer or sale of the farm
Where land is let on conacre for more than 10 years, the landowner may not qualify for retirement relief on Capital Gains Tax if the farm is sold or transferred to a family member.
Leasing the land long-term provides the structure to avoid this happening.
Benefits for Active Farmers
Security of Tenure
An active farmer (lessee) who is using long-term leased land as part of their farming operations can better plan their business in terms of lands farmed, stock carried and crops grown.
It gives more certainty to the business, while providing the opportunity to expand.
Better financial justification for the required investment
With a long-term lease, the active farmer (lessee) can justify financial investment in any improvement works that are necessary, such as reclamation, soil fertility, reseeding, roadways, fencing etc.
Farm buildings may come with the land which will reduce capital investment
In a situation where the active farmer is expanding their farm business, making use of existing facilities can greatly reduce any capital investment required in buildings, such as animal housing, slurry storage and silage facilities etc.
It also makes sense financially to both parties as it allows the active farmer to better justify any required investments and the landowner has the benefit of the income tax incentives.
A booklet on long term land leasing is available on the Teagasc website.
By Anthony O’Connor, Teagasc Adviser and Thomas Curran, Farm Structures Specialist, Teagasc.