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Wednesday, May 18, 2022

Martin O’Sullivan: Leasing your land for solar farms might not be all sunshine

Back in 2016, it looked like the rural landscape was about to consist of solar farms. But six years later, only a handful are still in operation, with a small number under construction.

n 2016, the demand was for plots of 25ac or maybe 50ac near an ESB sub-station, and solar power was not attracting much controversy.

Things have changed a lot. Smaller projects had feasibility issues, and now the emphasis is on assembling large installations of 200ac or more, which would have their own sub-stations.

These proposed large developments provide an attractive opportunity for many landowners with available and suitable land. Farmers are being paid rent of up to €1,200/acre.

However, the prospect of these large solar farms is causing panic in rural Ireland.

Many farmers are concerned about the impact on the landscape and the diversion of land away from agriculture, resulting in additional pressure on the already tight Conakry market in many areas.

The initial flurry of activity – and the associated questions I was getting – was slow moving six years ago.

But activity has increased significantly over the past six months, with many landowners being approached by solar farm developers.

I am not going to make a compromise between the need for green energy and the impact on the rural landscape; Instead, I’ll focus on the financial benefits, practical reservations, and tax implications for anyone looking to lease their land to solar companies.

Financial Benefits

The typical fare on offer is €1,000-1,200/ac, which typically represents an annual return on investment of 10pc or more.

This is as good as it gets in case of any type of property.

However, unlike leases for agricultural activities, rent for solar agriculture leases is fully taxable. Interested lessees need to consider their net after-tax position as compared to leasing to a farmer, especially if they also have eligibility for rent.

practical thinking

The most common issues that have come up in my discussions with interested lessees are:

The land leased to a solar company would normally be for a period of 35 years. Interested lessees need to be reassured that taking land from productive agriculture for the next generation is something they are comfortable with.

The prospect of covering your land with solar panels isn’t easy for every landlord.

Solar farms can attract resistance and generate controversy in some areas. It is not everyone’s business to deal with such reactions.

income tax status

Income derived from certain leases of agricultural land is exempt from tax; It was brought in to encourage landowners to lease land on a long-term basis to active farmers, thereby encouraging more productive use of the land.

Solar companies are not active farmers and hence not eligible lessees, hence the rent received will not be eligible for tax relief.

capital acquisition tax issues

Most agricultural heirs avoid the liability of capital acquisition tax (gift or inheritance tax) by taking advantage of agricultural relief.

This relief is available on land on which solar panels are installed, provided that the area of ​​land occupied by solar panels and accessories does not exceed half of the land included in the gift or inheritance.

Where such land is given on lease, it fulfills the requirement of an active farmer where all other conditions are satisfied.

Landowners considering leasing a solar company and relocating at a future date should seek professional advice before taking any action.

capital gains tax issues

Most family transfers qualify for exemption from capital gains tax through retirement relief.

Similar to Capital Acquisition Tax, eligibility for retirement relief will not be affected by the fact that the solar panels are installed on land suitable for cultivation, where the area of ​​the land on which the solar panels are installed does not exceed half of the total area concerned. Role.

However, the presence of a solar farm on land may increase the overall value of the material being transferred. Some large farmers over the age of 66 need to be mindful of the €3m upper limit that applies to family transfers in terms of being exempt from capital gains tax.

original payment idea

With respect to land occupied by solar panels, the position is that the cases will be investigated on an individual basis.

The current view of the Agriculture Department on land entitlement is that where the area of ​​a parcel covered by solar panels is 70pc or more of the total parcel, that parcel will be completely ineligible.

If less than 70 pcs is covered by solar panels, and agricultural activity is not hindered by the presence of panels, the area not covered by panels may be eligible land.

Land covered by panels would be considered eligible only where the landowner can continue to graze the land and have free access, and there must be a clause allowing grazing on the land taken in the lease.

Martin O’Sullivan is the author of the ACA Farmers Handbook and an agribusiness and tax consultant based in Carrick-on-Suire; www.som.ie

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