Why farmers should be aware of Capital Acquisitions Tax issues around solar contracts

There are two things in life that are certain; death and taxes and there are tax implications should you sign a solar energy contract, Declan McEvoy of IFAC Accountants said at a recent IFA seminar on solar energy.

Advising farmers at the event at the Killeshin Hotel in Portlaoise recently, he said that it is not only income tax that farmers need to consider when signing a solar contract.

Capital Gains Tax (CGT), Capital Acquisitions Tax (CAT) and VAT all need to be taken into consideration, he said.

Upon signing an option agreement, the immediate tax implications are income tax and CGT while in the longer term, CAT and VAT will come into play, according to McEvoy.

An option agreement is an agreement which allows the solar farm developer to lease the land. Therefore, if the developer requests that you sign an option agreement you are legally bound to sign the lease.

Option agreements can be exercised or not exercised – if planning permission is granted then it is exercised and if no planning is granted then it is not exercised.

For example, he said that if in 2016 you sign an agreement and by 2021 there is no planning permission (the option agreement is not exercised) for solar panels then you are liable to CGT back to when you entered the agreement.

If it is not exercised then you are part-liable to income tax/part CGT, he said.

For the purposes of CAT, business relief on the land will be ruled out as the land is leased however, on agricultural relief, McEvoy said that the Revenue has not issued guidance on this so it could be assumed that it’s not farmland therefore there would be no relief on that land.

However, he issued this advice with a tax health warning – as there is no Revenue guidance on it. On this issue, farmers are advised to get legal advice.

Meanwhile, on CGT he said there is a 25-year rule in place whereby a farmer over 55 years of age, must have owned and farmed the land for 10 years before signing a lease if they want to transfer it to a son or daughter.

“If he leases out that land for 25 years then he will still qualify for CGT relief, however if he goes over the 25 years, even by a day, then he can only transfer it by a will after his death [or pay CGT on the land].”

Again, farmers are advised to seek appropriate legal advice when it comes to signing a solar energy contract and transferring the farm.

When it comes to VAT on the land, he said that all leases are VAT exempt unless the owner wants VAT on it.

Concluding, McEvoy said that prior to signing anything, be aware of the tax issues within an agreement.