The Agriculture sector represents a fundamental driver of economic activity and employment in rural Ireland. The sector plays a key part in indirectly supporting local communities and economies. Due to increasing input costs, lower market returns and ever-increasing regulations, particularly in relation to environmental objectives, many farmers are seeing their margins diminished.
Earlier this year, the Central Statistics Office released their Agricultural Price Indices for the Year 2022. In reporting their key findings, it was noted that, while output price indices rose by 26.7%, agriculture input prices, when compared with 2021, rose by more than a third (35.1%), driven by significant price increases in fertiliser (+122.9%), energy (+42.3%) and feedstuff (29.5%).
A welcome reduction in fertiliser input prices has been reported by the CSO in their Agriculture Price Indices for July 2023, but worryingly, electricity prices have continued to increase and significant output price decreases were noted in the 12 months to July 2023 in milk (-34.7%), cattle (-2.5%) and sheep prices (-2.3%). The safety net that increased output prices provided in 2022 is now being eroded and 2023 may prove to be an even more challenging financial year for farmers. Budget 2024 will provide an opportunity to introduce tangible measures to support the agricultural sector. We consider a number of factors below and how the Government can address these in the Budget.
Capital Acquisitions Tax - Agricultural Relief
Renewable electricity plays a crucial role in Ireland’s efforts to combat climate change. Under the Climate Action Plan 2023 (CAP23), Government has set a target of having 80% of electricity generation coming from renewable sources by 2030. Wind energy is a large contributing resource of renewable energy in Ireland.
It is clear that the Agricultural Sector can play an important role in Ireland meeting its renewable energy targets through the use of on-land wind farms. Not only would the building of windmills on farms generate renewable energy, any income which a farmer may earn from the sale of surplus energy would help supplement already depleted margins. However, farmers are currently deterred from diversifying into this area, as it may have significant negative tax consequences at the point of passing their farm to the next generation. Currently, the land upon which the wind turbines stand is deemed to be commercial, thereby, ruling out any entitlement to claim CAT Agricultural Relief on the passing of a windfarm by way of gift or inheritance. Consideration should be given to extending the scope of Agricultural Relief to include the land upon which the turbines stand.
Stamp Duty - Consanguinity Relief
Additionally, as part of Ireland’s climate action targets, an increase in the amount of land planted for forestry would help. However, there are negative tax consequences for farmers who occupy and operate woodlands on a commercial basis when passing their farm to the next generation. Currently, land with woodlands growing on a commercial basis does not qualify for Consanguinity Relief. This is a relief which provides that, subject to meeting certain conditions, a beneficiary of agricultural land may be subject to Stamp Duty at a rate of 1%. However, in the absence of such a relief, a beneficiary will be subject to Stamp Duty at the 7.5% rate.
An extension to Consanguinity Relief to include forestry land would recognise the key part that farmers play in Ireland meeting its ambitious climate targets.
The Residential Zoned Land Tax (RZLT) was introduced in Budget 2022 as part of the Government’s 'Housing for All - a New Housing Plan for Ireland'. RZLT is intended to act as a stimulus to encourage residential development on certain land that is zoned for residential use and serviced. RZLT is an annual tax and is calculated at 3% of the market value of land within its scope. The motive behind the introduction of RZLT was well meaning, however, it is possible that land which forms an integral part of existing farm operations, where the zoned residential status of the land was provided without any consent, action or intent of the part of the land owner, can fall within the remit of the tax. Consideration must be given to introduce measures to help identify genuinely farmed land in order to remove it from the scope of RZLT.
Finally, as John Moore, VAT Director commented last week, an increase would be timely in the “flat rate addition”, being the amount payable to non-VAT registered farmers on their sales of certain agricultural produce. This dropped by a ½% to 5% from 1 January 2023. Any increase now introduced would reflect the increased costs for farmers on their purchases, including VAT incurred which they are unable to recover.
RBK will be holding its annual Breakfast Budget Briefing as a hybrid event in person at the Shamrock Lodge Hotel in Athlone and streaming live online on Wednesday 11th October. Mike Scanlan, Senior Tax Manager, RBK will be analysing the tax measures announced in Budget 2024 and Oliver Mangan, Chief Economist with AIB will look at the economic outlook. In the lead up to the Budget, RBK’s Business and Tax advisors will look at potential tax measures that the Government could consider and areas of concerns that are facing our clients.
Should you wish to discuss any aspect of agriculture, please contact our team:
- John Doherty: +353 90 6480600
- Jackie Masterson: + 353 90 6480600