ltd company with Farm asset/investment

gusman1859

Hi,

i have recently purchased a farm through my limited company. Does anyone know if it is better to declare the farm as an asset or an investment? I am trying to limit the amount of tax to pay as the money used to buy the farm was made by the company from IT activity. I will need to pay corporation tax on this also.

Any help appreciated

Gus

frazzledhome

Employ a good accountant, sorry to be short but.........

ganmo

I think assets are ment to be associated with your main business activity.
But don't really ave a bog notion

Base price

gusman1859 wrote: »

Hi,

i have recently purchased a farm through my limited company. Does anyone know if it is better to declare the farm as an asset or an investment? I am trying to limit the amount of tax to pay as the money used to buy the farm was made by the company from IT activity. I will need to pay corporation tax on this also.

Any help appreciated

Gus

Hi Gus
Just out of pig headiness - why did you purchase a farm and do you intend to farm it. Apologies in advance if I am been pertinent.

JeffKenna

Base price wrote: »

Hi Gus
Just out of pig headiness - why did you purchase a farm and do you intend to farm it. Apologies in advance if I am been pertinent.

Yes, and especially in an IT company? You'll have no reliefs at all when you come to dispose of the farm.

Also to answer your question Gus I don't think it makes a difference. Land is a non depreciating asset so you'll have no capital allowances in order to reduce your tax bill. Your accountant will tell you for definite once you give him the full facts.

Timmaay

Don't feed the troll!

lakill Farm

surely your current accountant and auditor will answer all your questions for €50 an hour

Farmer Pudsey

gusman1859 wrote: »

Hi,

i have recently purchased a farm through my limited company. Does anyone know if it is better to declare the farm as an asset or an investment? I am trying to limit the amount of tax to pay as the money used to buy the farm was made by the company from IT activity. I will need to pay corporation tax on this also.

Any help appreciated

Gus

If you have to ask these questions you should not have bought the farm

gusman1859

Thanks for the constructive comments. My accountant will advise but sometimes those who have been through it know better. Any further constructive advice welcome.

lakill Farm

gusman1859 wrote: »

Thanks for the constructive comments. My accountant will advise but sometimes those who have been through it know better. Any further constructive advice welcome.

surely befoe the company purchased the farm you asked your accountant for advice? not even a 5 minute call?

To be honest you wount get a correct answer from here. As we dont know the name of your comapny so cant check the memo and articles.

viztopia

a lot of the replies to this question seem to be bizzare, don't know why. I will reply as best I can.
never a good idea to buy property in a company as traditionally its an appreciating asset and it you were to sell it in the future then there would be cgt on the sale and then you have the problem of the profit from sale in the company and if this is taken from the company then you are taxed again so in effect you are taxed twice. I imagine that you bought the land in the company as it may have been cash rich at the time.
one good thing about having a farm in your own name and you are trading as a sole trader is that if it you make a loss (as a lot of people are) then it can be offset against paye income and get a refund of paye paid. can be good if you are in the high rate of tax.
would be good If you let us know what your accountant has advised you. also without giving too much away how much land did you but?

Farmer Pudsey

Farmer Pudsey wrote: »

If you have to ask these questions you should not have bought the farm

My answer was predicated on the thinking that if you get involved in any business and are unaware of fundmentald od that busisness and the tax implication of them you should not be involved.

At a cursory glance his company may be cash rich with retained profits of after 12.5% coporation tax. Buying may not be the issue it si the profitable use after that may be the issue. From within his company he may be already be using car and other deprecable allowances.

The real issue is thatt if the company folds he will lose the farm or if he sells the company to retain the farm he will generate a tax problem. As an asset a farm cannot be depreciated, and capital allowances are better used outside a ltd company where tax can be over 50% rater than internally where they only generate a 12.5% tax relief buy can generate a 33% CGT or if you want to remove from company structure you require a taxable income to exit.

I be of the opinion that if a company is very cash rich the it is tax efficent way of getting the mony out of the company should be the prirtity not the the use within the compay to buy a asset that if it apreciates in vale will generate a higher tax rate than 12.5% company tax.

I would have considered holding the farm within the company in a seperate holding company so that a longterm exit strgety could be put in place.

gusman1859

Thanks for the most recent interesting replies. I will respond when im home this evening. Regards Gus

gusman1859

Hi

I have been pleasantly surprised by the volume of replies so far - thank you.

The company was cash rich at the time but I don't expect the value of the land to rise substantially any time soon so am not overly concerned by CGT.

Viztopia - this I found very interesting thanks. For info it is 60 acres.

" one good thing about having a farm in your own name and you are trading as a sole trader is that if it you make a loss (as a lot of people are) then it can be offset against paye income and get a refund of paye paid. can be good if you are in the high rate of tax.
would be good If you let us know what your accountant has advised you. also without giving too much away how much land did you but? "

If I am trading as a limited company and my PAYE wife is a director of the company can she offset any losses against her income?


Farmer Pudsey - again thanks for your thoughts on this.

"and capital allowances are better used outside a ltd company where tax can be over 50% rater than internally where they only generate a 12.5% tax relief buy can generate a 33% CGT or if you want to remove from company structure you require a taxable income to exit"

Could you expand on the requirement of a taxable income to exit please?


"I would have considered holding the farm within the company in a separate holding company so that a longterm exit strgety could be put in place."

What benefit would having the farm in a separate holding company have at present? This is the first time this has been suggested.



My accountant has said that the farm is classified as an asset.


All the comments so far have referenced 12.5 corporation tax but my accountant has said that there would be a professional services on charge on distributable income and this would bring the total corporation tax payable on trading profits to circa 20% - Is this what is to be expected?

Regards
Gus

lakill Farm

you need to discuss this in more detail with your accountant and put together a structure with how your going to farm the land.

It sounds harsh but at the minute you sound like your all over the place and if so your going to loose out on tax planning tools.

thats from a farmer with a little experience in Ltd companies

gusman1859

Lakill farm: not harsh at all. The problem i have is i have a Dublin accountant who isnt familiar with farming practice. Maybe this is the big change i need...

lakill Farm

gusman1859 wrote: »

Lakill farm: not harsh at all. The problem i have is i have a Dublin accountant who isnt familiar with farming practice. Maybe this is the big change i need...

Well supplement your dublin accountant with a country accountant who is use to farmer or jump ship altogether.

The 2 areas you will benefit from are S381 and S392 as an individual

My idea would be as follows.

Your Ltd co owns the lad and will lease it to you for a fee per year. At market value say €6000
you farm the land as a sole trader
if your farm operates at a loss you claim S381/S392 when filling your Form11
The co files its CT1 and includes the rental income of the land at market value

_Brian

gusman1859 wrote: »

Lakill farm: not harsh at all. The problem i have is i have a Dublin accountant who isnt familiar with farming practice. Maybe this is the big change i need...

I'm sure Lakill could recommend a farming friendly accountant :P

lakill Farm

_Brian wrote: »

I'm sure Lakill could recommend a farming friendly accountant :P

do you want me getting banned again :mad:

JeffKenna

lakill Farm wrote: »

Well supplement your dublin accountant with a country accountant who is use to farmer or jump ship altogether.

The 2 areas you will benefit from are S381 and S392 as an individual

My idea would be as follows.

Your Ltd co owns the lad and will lease it to you for a fee per year. At market value say €6000
you farm the land as a sole trader
if your farm operates at a loss you claim S381/S392 when filling your Form11
The co files its CT1 and includes the rental income of the land at market value

Does the OP even have a green cert or a herd number?

_Brian

lakill Farm wrote: »

do you want me getting banned again :mad:

i'm sure your capable of being discrete and sending a PM..

lakill Farm

JeffKenna wrote: »

Does the OP even have a green cert or a herd number?

you dont need a green cert

it takes about 4 weeks to get a herd number.

Also it was only an idea

lakill Farm

_Brian wrote: »

i'm sure your capable of being discrete and sending a PM..

The OP or anyone else is free to PM anytime

Farmer Pudsey

gusman1859 wrote: »

Hi

I have been pleasantly surprised by the volume of replies so far - thank you.

The company was cash rich at the time but I don't expect the value of the land to rise substantially any time soon so am not overly concerned by CGT.

Viztopia - this I found very interesting thanks. For info it is 60 acres.

" one good thing about having a farm in your own name and you are trading as a sole trader is that if it you make a loss (as a lot of people are) then it can be offset against paye income and get a refund of paye paid. can be good if you are in the high rate of tax.
would be good If you let us know what your accountant has advised you. also without giving too much away how much land did you but? "

If I am trading as a limited company and my PAYE wife is a director of the company can she offset any losses against her income?


Farmer Pudsey - again thanks for your thoughts on this.

"and capital allowances are better used outside a ltd company where tax can be over 50% rater than internally where they only generate a 12.5% tax relief buy can generate a 33% CGT or if you want to remove from company structure you require a taxable income to exit"

Could you expand on the requirement of a taxable income to exit please?


"I would have considered holding the farm within the company in a separate holding company so that a longterm exit strgety could be put in place."

What benefit would having the farm in a separate holding company have at present? This is the first time this has been suggested.



My accountant has said that the farm is classified as an asset.


All the comments so far have referenced 12.5 corporation tax but my accountant has said that there would be a professional services on charge on distributable income and this would bring the total corporation tax payable on trading profits to circa 20% - Is this what is to be expected?

Regards
Gus

The reason for a seperate holding company is that down the line you could seperate the farm from the company without too much hassle. From that i mean that you could sell the holding company to youselfin the case that you decided to exit the IT busisness by selling it on.

TBH there are lads better at the accountancy than me as Lakhill says get a accountant that is familar with agriculture is a good place to start.

JeffKenna

lakill Farm wrote: »

you dont need a green cert

it takes about 4 weeks to get a herd number.

Also it was only an idea

But to get a herd number there will need to be a holding crush and possibly sheds to winter animals. To be honest I'm not sure about the logistics of that so someone else would know better.

Would you not need to be a qualified farmer to avail of any tax reliefs in the future? I know people can avail of them but that's because they've been farming the appropriate length of time.

Not critising your plan at all but what would revenues opinion be in the event of an audit? I know it's ok if an individual is a farmer, owns the land and can show he is trying to farm for profitability. Surely what you are suggesting is the OP rents land, is not a qualified farmer, farms at a loss and expects then to put that loss against income. It would seem to be very much pushing the boundary of tax avoidance?

lakill Farm

JeffKenna wrote: »

But to get a herd number there will need to be a holding crush and possibly sheds to winter animals. To be honest I'm not sure about the logistics of that so someone else would know better.

Would you not need to be a qualified farmer to avail of any tax reliefs in the future? I know people can avail of them but that's because they've been farming the appropriate length of time.

Not critising your plan at all but what would revenues opinion be in the event of an audit? I know it's ok if an individual is a farmer, owns the land and can show he is trying to farm for profitability. Surely what you are suggesting is the OP rents land, is not a qualified farmer, farms at a loss and expects then to put that loss against income. It would seem to be very much pushing the boundary of tax avoidance?

I said "if there was a farm loss"

Why would it seem to push the boundary of tax avoidance? I would strongly dispute your statement. Its tax planning

JeffKenna

lakill Farm wrote: »

I said "if there was a farm loss"

Why would it seem to push the boundary of tax avoidance? I would strongly dispute your statement. Its tax planning

To put farm losses against tax you have to attempt to farm for profit. What you are suggesting is getting the OP to farm without any qualifications and if he makes a loss put that against tax. I believe if that came to a revenue audit it would be very questionable if he were farming for profit. I suppose revenue are really the only people who could answer that question.

gusman1859

Hi i have a herd number. The nub of it all is proper tax planning.

JeffKenna

gusman1859 wrote: »

Hi i have a herd number. The nub of it all is proper tax planning.

Realistically nobody on the internet is going to give you accurate advise without knowing your full situation. Probably best to pop into some ifac office and they could give advise with all the full facts.

Tax planning is all very well but as you know yourself Revenue are people you don't want to get on the wrong side of anywhere down the line.

Farmer Pudsey

Jeff
farming is like lots of other trades busisness you do not need proven qualifications to become involved. Getting a herd No on 60 acre would not be problemmatic as long as you have a crush and a metod of housing a sick animal you will ahve most issues resolved.

Op more than likly from a farming background and may have an uncle, father or sibling that he was giving a hand to for the last 5 years and if he is over mid 30's this will qualify him as a farmer unless regulations changed over last few years.

In any business tax planning is the most important part of a sucessfull operation. This is true of IT, building, car dealer, hotel, B&B or any other busisness involved. Farming and other small sole traders have certain tax advantages that they should avail of if building up a business if they are already PAYE workers. It is standart practice in farming for market rentals to be used to farm inside or outside a company structure. Revenue have no issue as long as realistic market values are used. In OP case this could be anywhere from 6-18K depending on land rental charges in the area and OP own tax stragety.

lakill Farm

JeffKenna wrote: »

Realistically nobody on the internet is going to give you accurate advise without knowing your full situation. Probably best to pop into some ifac office and they could give advise with all the full facts.

Tax planning is all very well but as you know yourself Revenue are people you don't want to get on the wrong side of anywhere down the line.

Jeff i think your off with the fairies. your putting across ideas and your not even half sure of them yourself. I spend 4 years in college full time and a further 3 years getting my qualification. 7 years to give an opinion which I think would work

OP go to an accountant that is fimiliar with farming. It was my first suggestion. Also pull out a set of the memo and articles of the company and make sure the company is within its remit to rent the land or farm it.

JeffKenna

lakill Farm wrote: »

Jeff i think your off with the fairies. your putting across ideas and your not even half sure of them yourself. I spend 4 years in college full time and a further 3 years getting my qualification. 7 years to give an opinion which I think would work

OP go to an accountant that is fimiliar with farming. It was my first suggestion. Also pull out a set of the memo and articles of the company and make sure the company is within its remit to rent the land or farm it.

Bit harsh there saying I'm off with the fairies I must say.

JeffKenna

Farmer Pudsey wrote: »

Jeff
farming is like lots of other trades busisness you do not need proven qualifications to become involved. Getting a herd No on 60 acre would not be problemmatic as long as you have a crush and a metod of housing a sick animal you will ahve most issues resolved.

Op more than likly from a farming background and may have an uncle, father or sibling that he was giving a hand to for the last 5 years and if he is over mid 30's this will qualify him as a farmer unless regulations changed over last few years.

In any business tax planning is the most important part of a sucessfull operation. This is true of IT, building, car dealer, hotel, B&B or any other busisness involved. Farming and other small sole traders have certain tax advantages that they should avail of if building up a business if they are already PAYE workers. It is standart practice in farming for market rentals to be used to farm inside or outside a company structure. Revenue have no issue as long as realistic market values are used. In OP case this could be anywhere from 6-18K depending on land rental charges in the area and OP own tax stragety.

Pudsey, what is being proposed here is not a simple farmer working and putting any potential loss against against other income. Granted if as you say in your post the OP has family that farm that will be of benefit, but I can't see that suggested anywhere.

The situation as far as I can see is the OP will rent land from a company, farm this land and if a loss occurs use this. Now revenue only allow this if the farm is actually been farmed for the purpose of profit and in the event of an audit will test this. That is simply my point and in my opinion it's very dangerous to be offering advise to the OP suggesting this.

lakill Farm

JeffKenna wrote: »

Pudsey, what is being proposed here is not a simple farmer working and putting any potential loss against against other income. Granted if as you say in your post the OP has family that farm that will be of benefit, but I can't see that suggested anywhere.

The situation as far as I can see is the OP will rent land from a company, farm this land and if a loss occurs use this. Now revenue only allow this if the farm is actually been farmed for the purpose of profit and in the event of an audit will test this. That is simply my point and in my opinion it's very dangerous to be offering advise to the OP suggesting this.

what experience of Revenue audit have you Jeff?

lakill Farm

JeffKenna wrote: »

Pudsey, what is being proposed here is not a simple farmer working and putting any potential loss against against other income. Granted if as you say in your post the OP has family that farm that will be of benefit, but I can't see that suggested anywhere.

The situation as far as I can see is the OP will rent land from a company, farm this land and if a loss occurs use this. Now revenue only allow this if the farm is actually been farmed for the purpose of profit and in the event of an audit will test this. That is simply my point and in my opinion it's very dangerous to be offering advise to the OP suggesting this.

then did the OP suggest he was going to farm it as a sole trader? I think he asked for peoples opinion. First hurdle is the memo and articles of the company. Its all stipulation until that.

JeffKenna

lakill Farm wrote: »

then did the OP suggest he was going to farm it as a sole trader? I think he asked for peoples opinion. First hurdle is the memo and articles of the company. Its all stipulation until that.

Indeed he didn't propose any such action, it was you that proposed that.

Also to answer your above question I'm aiti qualified so yes I've plenty of experience of preparing clients for revenue audits. I also do know that what you are proposing is quite dangerous.

lakill Farm

JeffKenna wrote: »

Indeed he didn't propose any such action, it was you that proposed that.

Also to answer your above question I'm aiti qualified so yes I've plenty of experience of preparing clients for revenue audits. I also do know that what you are proposing is quite dangerous.

you will find that none of my suggestions were dangerious.

the relief of S381 is there to be used and if you have the luxury of having an off farm PAYE job to use losses well then why not? once the farmer is farming in a commercial manner then no revenue auditor will have a problem. I know many a full time farmer making losses. why are so many farmers on Farm assist? Because its the reality of the industry.

He is hardly going to go and spend €10m on machinery and sheds and keep one cow on 60 acres and never sell anything.

JeffKenna

lakill Farm wrote: »

you will find that none of my suggestions were dangerious.

the relief of S381 is there to be used and if you have the luxury of having an off farm PAYE job to use losses well then why not? once the farmer is farming in a commercial manner then no revenue auditor will have a problem. I know many a full time farmer making losses. why are so many farmers on Farm assist? Because its the reality of the industry.

He is hardly going to go and spend €10m on machinery and sheds and keep one cow on 60 acres and never sell anything.

Yes but you're comparing apples with oranges. What you are talking about are full time farmers who probably own the land in their own name, are qualified and have a history of farming.

The OPs situation seems different based on his posts and I've outlined that previously.

Be careful of what advise you give. We'll agree to disagree.

lakill Farm

JeffKenna wrote: »

Yes but you're comparing apples with oranges. What you are talking about are full time farmers who probably own the land in their own name, are qualified and have a history of farming.

The OPs situation seems different based on his posts and I've outlined that previously.

Be careful of what advise you give. We'll agree to disagree.

We wount agree :eek:. A farmer is a farmer.

I know lots of people who farm, didnt grow up on a farm. dont have a green cert and dont own land. Yet they are farmers. How many on here rent the land from their parent/s ? they dont own the land. No difference.

There are no difference in how revenue deal with you if you are part time farming or full time . Your a farmer.

gusman1859

The memo of articles are all checked and ok

I should have also said that I also own circa 20 acres in my own name (separate from the company) so the concept of leasing the company land myself is plausible.

lakill Farm

gusman1859 wrote: »

The memo of articles are all checked and ok

I should have also said that I also own circa 20 acres in my own name (separate from the company) so the concept of leasing the company land myself is plausible.

thats the way to go Gusman so .

Farmer Pudsey

JeffKenna wrote: »

Pudsey, what is being proposed here is not a simple farmer working and putting any potential loss against against other income. Granted if as you say in your post the OP has family that farm that will be of benefit, but I can't see that suggested anywhere.

The situation as far as I can see is the OP will rent land from a company, farm this land and if a loss occurs use this. Now revenue only allow this if the farm is actually been farmed for the purpose of profit and in the event of an audit will test this. That is simply my point and in my opinion it's very dangerous to be offering advise to the OP suggesting this.

The odds were always that OP was from a farming background unless he was trolling. Revenue have to have an open mind on farming it has an industry based on it that has I think 24 billion. If Revenue stopped investment in this sector from any source it would have repucussions and especially in beef could decimate the industry. The rules are there and as long as farmers obey them there is no issue.

Alan Shore

The farmland will be included in Fixed assets if you are conducting a trade of farming.

If you are letting out the farmland it will be included in investments.

I'm not sure that I would consider conducting the trade as a sole trader and paying a rent to the company. You will effectively be drawing a salary to cover the loss in order to claim the loss against the salary. The rent will be taxed at 40% in the company.

Probably best to conduct the farm trade in the company and keep the salary to spend on yourself.

Farmer Pudsey

Alan Shore wrote: »

The farmland will be included in Fixed assets if you are conducting a trade of farming.

If you are letting out the farmland it will be included in investments.

I'm not sure that I would consider conducting the trade as a sole trader and paying a rent to the company. You will effectively be drawing a salary to cover the loss in order to claim the loss against the salary. The rent will be taxed at 40% in the company.

Probably best to conduct the farm trade in the company and keep the salary to spend on yourself.

I am not a tax expert, however the issue I see is that you have to look at a method of extracting the farm from the company, otherwise you have a lot of eggs in one basket.

Dr Sir Tony Anthony is an example, maybe I am wrong it may be Sir Dr Antony Tony.

gusman1859

Hi,

I’ve been away from the boards for a few weeks and only getting a chance to check back in now. All the previous info has made me have a clearer picture of how things will pan out.

I’m hoping that someone might have the answer to the following:
Can you claim the cost of having silage made by contractors as an expense?
Can you claim the cost of drainage as an expense? Or is their vat only that you can claim? Or are there grants for drainage?

Thanks for the help.
Gus

Farmer Pudsey

gusman1859 wrote: »

Hi,

I’ve been away from the boards for a few weeks and only getting a chance to check back in now. All the previous info has made me have a clearer picture of how things will pan out.

I’m hoping that someone might have the answer to the following:
Can you claim the cost of having silage made by contractors as an expense?
Can you claim the cost of drainage as an expense? Or is their vat only that you can claim? Or are there grants for drainage?

Thanks for the help.
Gus

Contractor costs in relation to silage is a direct cost that is written off in that years accounts.

Land drainage is a capital cost that can be written off over 8 years. However all VAT can be claimed back on stone, land drainage pipes and vat on machinery. However if drainage is cleaning of drains the vat is not reclaimable but costs can be written off in year of work completely

gusman1859

Thanks Farmer Pudsey

Rp09491

I'm currently getting my fathers farm transferred to me. Does anyone kno do I still qualify for agricultural relief if I go straight into a limited company.

lakill Farm

Rp09491 wrote: »

I'm currently getting my fathers farm transferred to me. Does anyone kno do I still qualify for agricultural relief if I go straight into a limited company.

Keep the land in your name either way.

Have you green cert ??