As solar companies explore renewing their offerings, battery storage is emerging as an added choice.
Battery storage adds additional considerations from a tax perspective for succession planning, particularly in meeting the qualifications for agricultural relief. However, it's important to note that standalone battery storage alone does not meet the criteria. Solar panels must be installed alongside the batteries, with the latter serving to capture and store the energy generated. This underscores the importance of careful consideration, as legislation mandates that the batteries be charged by the solar panels to meet requirements. As with the initial round of solar offers, the new wave of second options needs to be reviewed from a tax perspective and the effect of the expiry of the original options considered.
Over the next couple of months, the push for solar is expected to start again so that applications are ready for September grid connections. Competition is fierce at the moment for connections to the grid, and batteries are being used as an easement to allow for additional power production capacity where grids could otherwise exceed maximum capacity but limited.
Planning permission is still causing delays as the technology changes and updated planning needs to take place before construction can start.
Tax implications – Ongoing.
Leasing farmland to solar companies in Ireland can have tax implications for both the farmer and the solar company involved. Here are some potential tax implications to consider:
Income tax: The rental income received by the farmer from leasing their land to a solar company is subject to income tax, Universal social charge (“USC”) and PRSI. The farmer must declare the rental income received on their annual tax return and pay tax on it at the applicable rate. Where the lease exceeds 25 years, an element of any initial payment may be taxable as capital gains tax.
Capital Gains Tax: If the farmer decides to sell the land to the solar company, they will be subject to capital gains tax on the sale. Reliefs are available, such as retirement, entrepreneurial, and consolidation relief.
Value Added Tax (VAT): In general, there is no VAT on the leasing of land. However, where buildings and other structures are being leased VAT may need to be considered. The sale of a solar farm within five years of construction is subject to VAT.
Tax implications - Succession
Leasing land to a solar company in Ireland can have implications for inheritance tax if the landowner passes away or gifts the leased land. Here are some potential implications to consider:
Capital Acquisitions Tax (“CAT”) is a tax on gifts and inheritances and is currently levied at a rate of 33%. The value of the leased land will be included in the calculation of the total value of the estate and may increase the amount of CAT payable. There are group thresholds depending on the relationship between the disponer and successor.
Agricultural Relief: Agricultural Relief is a tax relief that can reduce the value of agricultural property for inheritance tax purposes by 90%. The relief is available if the landowner is leasing less than 50% of their land to a solar company and continues to farm the land not leased to the solar company.
Business Relief: Business Relief is a tax relief that can reduce the value of a business or business asset for inheritance tax purposes by 90%, similar to agricultural relief. However, the land must be actively farmed and cannot be leased to a third party, including a solar company.
It's important to note that the inheritance tax implications of leasing land to a solar company in Ireland can be complex and will depend on the specific circumstances of each case. It is advisable to seek professional tax advice before entering into any agreements or transactions.
