What Budget 2018 Means for Agriculture

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Highlights

  • The government has unveiled a €300m loan scheme to help small and medium-sized businesses, with a minimum of 40% of this sum going to food and agriculture firms
  • Farming families will also benefit from lower tax rates on land transfers, which should offset the rise in stamp duty the government has announced
  • Capital gains tax relief is also available for agricultural firms that site solar panels on up to 50% of their land

Measures designed to help firms in the agricultural sector cope with Brexit-related uncertainty, plus extensions to tax-relief schemes for farming families, were key features of the recent Budget.

The government used Budget 2018 to announce a range of measures designed to help the country’s agricultural sector withstand current economic challenges – in particular the uncertainty surrounding the UK’s negotiations to leave the European Union.

Paschal Donohoe TD, the minister for finance and public expenditure and reform, unveiled a €300m Brexit loan scheme for small and medium-sized enterprises, with a minimum of 40% of this sum going to food and agriculture businesses.

The loans are designed to help firms improve their competitiveness and explore new market opportunities in case Brexit negotiations result in the imposition of new tariffs and other trade barriers between the UK and the remaining 27 EU member states.

Donohoe announced a number of measures to boost farmers’ incomes, while the minister has also decided to extend policies that will see farming families benefit from lower tax rates on land transfers.

But farmers’ groups are putting pressure on the government to exempt agricultural land from the new higher rate of stamp duty on non-residential property, which has been increased from 2% to 6%.

In the wake of the Budget 2018 speech, Michael Creed, minister for agriculture, food and the marine, said: “The provision of support for vulnerable farmers, fishermen and for investment, innovation and market development in a food sector challenged by the uncertainty surrounding Brexit is a key feature of this year’s budget. The funding will allow us to build on the work we have already done and to encourage the continued growth in our food exports, which grew by 13% in the first half of 2017.

 

Brexit support package

The €300m loan scheme follows the success of a similar programme implemented in Budget 2017. Creed said the new loans would “provide affordable, flexible financing to Irish businesses impacted by Brexit”.

He added: “Given the agri-food sector’s unique exposure to the UK market, my department’s funding for this scheme ensures that at least 40% of the fund will be available to food businesses.”

The dependence of a number of smaller producers on the UK market was an issue for the country, says Declan McEvoy, head of tax at IFAC Accountants. “There’s a possibility of tariffs that could make us hugely uncompetitive, and even in the days immediately after the Budget there were new reports from the UK suggesting negotiations were going to stall in a lot of areas,” he says.

“So the government has offered a low-interest-rate loan facility to bridge the gap and allow producers to look for alternative markets.”

 

“It’s incremental steps everywhere to give people a little bit more in their pockets”

 

Declan McEvoy, head of tax, IFAC Accountants

 

Income tax boost

There were a number of smaller measures relating to taxes on income that should be beneficial to farmers, says Kevin Connolly, farm management specialist at Teagasc, the agriculture and food development authority.

“In Budget 2018, on the income tax side, the news was all fairly positive with a few small changes but all having the general effect of reducing the tax burden,” says Connolly. “The increase in the standard rate band by €750 is a positive in that it will result in less of the farm income being taxed at the higher rate of 40%.

“Similarly, the increase in the earned income tax credit by €200 to a maximum of €1,150 should result in lower income tax liabilities for farmers.

“And the lowering of the rate for the Universal Social Charge [USC], which is levied on gross income over €13,000, should also leave more after-tax income in farm owners’ hands.”

McEvoy adds: “It’s incremental steps everywhere to give people a little bit more in their pockets.”

 

Mixed news on capital taxes

One of the most controversial measures in Budget 2018 was the decision to increase stamp duty on non-residential property from 2% to 6% – a policy that looks to be applied to agricultural land.

The government expects the change to bring in €376m a year in tax revenues from commercial property transactions that will help fund the aforementioned cuts in income tax and the USC.

“For those buying land, it may mean they have to have more equity to put in themselves,” McEvoy says. “And it could have the impact of reducing the price of land by 4% or 5% to allow for this increased cost.”

Connolly adds: “The largely unpredicted increase in the rate of stamp duty applied to non-residential property from 2% to 6% has made it potentially more expensive for those acquiring land by either of these routes.

“Thankfully, there are some useful reliefs available for young farmers and farm families to reduce the stamp duty burden on acquiring land.”

For example, Donohoe announced that stamp duty relief for young trained farmers will be extended for a further three years. Meanwhile, consanguinity relief, a 1% stamp duty rate that applies to the transfer of farmland within families, has also been extended until 2020.

Connolly says: “There are conditions associated with claiming these stamp duty reliefs, as there are with the other extremely valuable reliefs for the other capital taxes. It’s important that farmers and their families are aware of these conditions and organise their affairs to avail of them.”

Meanwhile, the government has changed the rules relating to land used to site solar panels, McEvoy says. “Up to now it’s been treated as non-agricultural land, but it’s now going to be treated as agricultural land for capital gains tax and inheritance tax relief purposes, provided no more than 50% of your farm is used for solar.

“The amount of relief available is huge and opens up a new potential source of income even for non-viable farms.”

 

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