The last two years have seen increased interest in solar and wind farm companies looking to enter into option agreements to acquire land to potentially erect solar panels or wind turbines. Declan McEvoy, Head of Tax at IFAC, clarifies the tax incentives for farmers interested in renewables.
The typical contract that a solar/wind farm company is looking to enter into with the landowner is broken down as follows:
1. Option agreement
The first part is the option agreement to lease the land. The taxing of an option is treated as a disposal for Capital Gains Tax, and the ultimate treatment depends on whether the option is exercised or not. Uncertainty on the final tax position can be problematic and is the first point of certainty required.
2. Lease agreement
Once the option is exercised and the annual income stream starts to flow, the income received is liable to income tax. Look at options available to minimize that. Why not limit the maximum tax payable, including PRSI AND USC, to say 35% of the income for the first five to seven years to incentivise the farmer to enter the agreement?
3. CGT/CAT
Notwithstanding that tax laws were changed to encourage solar, no such law change applied to wind farms. Two reliefs are affected:
CGT – retirement relief
Cat – agricultural relief
The Finance Act 2017 extended the definition of reliefs to include “lands used for solar where not more than half the land is concerned.” Most solar companies are looking for more than half of the land and land used for wind turbines does not have a tax break.
However, renewables are an excellent source of funds for your farm, and even with tax issues may still be the best alternative. See more detail: Here