Falling farm incomes make 2026 a year to revisit tax payments, income averaging, VAT claims and succession planning rather than relying on last year’s position.

For accountants advising farming clients, the tax conversation in 2026 may look very different from 2025.

The central issue is volatility. The webinar highlighted significant expected changes in farm incomes between the two years. That makes historic profit figures a potentially poor guide to current cash flow and tax planning.

It also puts greater emphasis on several established reliefs and planning tools. Income averaging, preliminary tax, stock relief and business structure all deserve another look.

In a recent webinar, Agri-Tax Update: Income and Capital Taxes, Declan McEvoy pointed out four areas to put on your review list.

1. Revisit preliminary tax where profits have fallen

A strong 2025 does not necessarily mean a strong 2026.

The webinar highlighted substantial expected year-on-year income reductions across several farming systems. Dairy was a particularly striking example, with the figures presented showing a sharp reduction from the previous year.

For advisers, the practical issue is cash flow. A preliminary tax payment based on the previous year's liability could prove particularly demanding where current-year profits have fallen.

That makes it worth reviewing the available preliminary tax payment basis rather than automatically carrying forward last year's position.

The important point is not simply to minimise the payment. Any calculation based on the current year's expected liability needs credible forecasts and appropriate allowance for the consequences if that estimate proves too low.

Farm clients experiencing weaker prices or higher costs may therefore need their tax position reviewed earlier than usual.

2. Income averaging can help manage volatility

Income averaging exists for precisely the kind of volatility farming businesses can experience.

Revenue's current guidance confirms that qualifying farmers can be taxed using the average of five years' farming profits and losses. Farmers entering the regime must generally remain within it for at least five years.

That makes averaging a planning tool rather than simply another year-end calculation.

Where 2025 produced unusually high profits, averaging may reduce the immediate taxable figure. If 2026 then produces substantially lower profits, advisers should consider how remaining within averaging affects the client.

There is also a temporary step-out mechanism. Revenue confirms that a farmer may elect to be taxed on actual profits for a single year, with deferred tax arising under the averaging rules payable subsequently.

Structure matters too. Changes involving partnerships, companies or a cessation of the existing farming trade can interact with averaging rules.

Before recommending a restructuring, model the tax consequences across several years rather than looking at one year's headline saving.

3. Treat VAT 58 claims cautiously

VAT 58 was another important area raised during the webinar.

Flat-rate farmers can reclaim VAT on specified categories of expenditure without becoming VAT registered. Revenue currently identifies qualifying expenditure including construction or alteration of farm buildings, certain work to farmland and qualifying micro-generation equipment. Claims generally need to be submitted within four years from the end of the relevant taxable period.

The difficulty arises when equipment is installed within a farm building.

The webinar examined recent Tax Appeals Commission decisions involving equipment including dairy and egg-packing installations. The recurring issue was whether the expenditure represented work to the farm structure or expenditure on machinery installed within it.

That distinction matters.

An item can be fixed in place and essential to a farming operation without necessarily becoming qualifying expenditure on the building itself.

Revenue has previously emphasised that VAT 58 claims operate on a self-assessment basis. Farmers and their agents therefore need to satisfy themselves that individual claims meet the relevant conditions.

For accountants, the practical lesson is straightforward: examine exactly what was constructed or altered rather than assuming installed equipment qualifies because it forms part of a larger building project.

4. Agricultural Relief needs careful asset analysis

Agricultural Relief can substantially reduce the taxable value of qualifying agricultural property for Capital Acquisitions Tax purposes.

The webinar focused particularly on the 80% agricultural property test and the risk of cases sitting only marginally above that threshold.

Revenue guidance describes a farmer for this purpose as an individual whose agricultural property represents at least 80% of their gross property after taking the gift or inheritance. Where the relevant requirements are satisfied, Agricultural Relief provides a 90% reduction in the market value of qualifying agricultural property when determining its agricultural value.

That calculation means apparently minor non-agricultural assets can matter where the beneficiary is close to the 80% boundary.

The webinar described current cases where Revenue had sought details of household contents when examining the calculation. In one example presented during the session, adding €55,000 of contents to the non-agricultural assets reduced the agricultural proportion from 80.8% to 74.9%.

That example provides a useful warning for advisers.

Do not assume a client passes the test because farmland dominates their wealth. Establish the complete asset position and document how each material asset has been classified.

The webinar also discussed potential future changes to Agricultural Relief arising from tax-policy discussions. Those proposals should not be treated as enacted rules. Advisers should work from current legislation and Revenue guidance until any change is actually made.

Make the tax review reflect the farming year

The common thread across these issues is volatility.

When profits, input costs and output prices change quickly, simply repeating last year's tax treatment can produce poor outcomes. Preliminary tax may need reconsideration. Income averaging can change the timing of liabilities. Stock values and relief claims require attention, while restructuring decisions need to be modelled before implementation.

VAT 58 and Agricultural Relief bring a different risk: eligibility depends on the detailed facts.

For advisers, 2026 therefore calls for a client-by-client review based on the farming business as it operates now, rather than the position reflected in last year's accounts.

Frequently Asked Questions for Accountants

Why should farmers and their accountants review preliminary tax in 2026?

Farm incomes can change significantly from one year to the next. The webinar highlighted an expected reduction in 2026 income across several farming systems compared with 2025.

Where current-year profits are substantially lower, basing preliminary tax automatically on the previous year's liability may create unnecessary cash-flow pressure. Accountants should review the available payment basis using realistic current-year profit estimates and consider the potential interest consequences if an estimate proves too low.

How does income averaging work for farmers?

Income averaging allows qualifying farmers to calculate taxable farming income using an average rather than relying solely on one year's farming result.

The webinar describes the calculation as covering the current year and four previous years. This can be particularly useful where farm profits fluctuate substantially between strong and weak years.

However, averaging should be considered across several tax years. Decisions to enter, temporarily step out of, or cease averaging can affect future liabilities.

Can a farmer temporarily step out of income averaging?

Yes. The webinar explains that farmers within income averaging can elect to temporarily step out where actual profits are lower.

The farmer is then taxed using the normal result for that year, while the resulting deferred tax is payable over the following four years. The webinar also notes that PRSI treatment differs from the deferred income-tax treatment.

The detailed calculation should be reviewed for the individual farmer before making an election.

Does changing from a sole trader to a company affect income averaging?

Potentially. Incorporating a farming business can constitute a cessation event for income-averaging purposes.

The webinar therefore recommends considering income averaging alongside any proposed restructuring rather than treating incorporation as an isolated decision.

Registered farm partnerships are subject to specific rules. A move into or permanent discontinuance of a registered farm partnership is not necessarily treated in the same way as an ordinary cessation for income-averaging purposes.

What stock relief is available to farmers?

The webinar identifies three principal rates of stock relief: general stock relief at 25%, registered farm partnership relief at 50%, and young trained farmer relief at 100%.

Different conditions and limits apply to each category. Stock relief cannot be used to create or increase a trading loss.

Accountants should also consider the interaction between stock relief, capital allowances and losses before making a claim.

How should livestock be valued for farm accounts?

The appropriate treatment depends partly on the type of livestock.

During the webinar Q&A, purchased livestock was described as falling under the normal lower-of-cost-or-market-value principles. Specific valuation treatment was discussed for livestock bred on the farm, while breeding stock requires consistent treatment from year to year.

For historic accounts where reliable values are unavailable, the speaker suggested contemporaneous livestock market information as useful supporting evidence.

Can farmers claim capital allowances on farm buildings?

The webinar explains that qualifying farm-building expenditure can receive capital allowances under the specific rules applying to farming.

Examples discussed include farm buildings, fences, roadways, drains, walls and certain water and electrical works. The expenditure must relate to land occupied for the purposes of the farming trade.

Different rules can apply when assets are transferred between a sole trader, partnership and company, so remaining allowances should be reviewed during restructuring.

Can a company claim farm-building allowances on leased farmland?

According to the webinar, a company carrying on a farming trade may be able to claim qualifying farm-building allowances where it incurs the expenditure and occupies the leased land for farming purposes.

This is different from transferring existing allowances from an individual farmer into a company. Ownership, occupation, expenditure and the existing tax treatment of the building all need to be established before determining the available allowances.

What is VAT 58 for flat-rate farmers?

VAT 58 provides a mechanism through which qualifying flat-rate farmers can seek repayment of VAT on specified expenditure.

The webinar identifies areas including qualifying construction or alteration of farm buildings, land drainage, land reclamation and well drilling. It distinguishes this expenditure from movable equipment and general repairs or maintenance.

The precise nature of the expenditure matters. An item used within a farm building does not qualify simply because it is essential to the farming operation.

Can VAT be reclaimed on equipment installed in a milking parlour?

Not necessarily.

The webinar reviewed Tax Appeals Commission decisions involving dairy equipment where VAT repayments were refused. The distinction was between expenditure on qualifying work to the farm structure and expenditure on machinery or equipment installed within that structure.

The practical point for accountants is to examine what was actually constructed or altered. Equipment does not automatically become qualifying building expenditure because it is fixed in place or essential to the operation.

What is Agricultural Relief for Capital Acquisitions Tax?

Agricultural Relief can reduce the taxable value of qualifying agricultural property when its conditions are satisfied.

The webinar describes a 90% reduction in value and highlights the importance of the farmer test, including the requirement that agricultural property represents at least 80% of the beneficiary's relevant assets.

Because eligibility depends on the complete asset calculation, accountants should establish both agricultural and non-agricultural property rather than looking only at the value of the farm.

Can household contents affect the Agricultural Relief 80% test?

The webinar suggests this can become important where a beneficiary is only marginally above the 80% threshold.

The speaker described cases where Revenue requested schedules of household contents as part of its examination of the beneficiary's assets. One webinar example showed €55,000 of contents reducing an agricultural-property calculation from 80.8% to 74.9%.

This should be treated as a transcript-reported example rather than a general statement of Revenue policy. Cases close to the threshold require careful individual analysis.

Does Agricultural Relief apply automatically when somebody inherits a farm?

No. Owning or inheriting agricultural property does not by itself establish entitlement to Agricultural Relief.

The webinar highlights both an asset test and an active-farmer requirement. The beneficiary's wider assets can therefore affect eligibility even where the inherited farm represents substantial value.

The relevant conditions should be tested using the beneficiary's actual circumstances at the appropriate time.

What is a registered farm partnership?

A registered farm partnership allows qualifying farmers to operate together under a formal partnership structure while potentially accessing specific farming measures.

The webinar discusses benefits including particular stock-relief treatment, access to certain grant arrangements and its potential role in succession planning.

There are also formal requirements. These include registration, a written partnership agreement and rules governing participation and profit sharing.

Is a registered farm partnership the same as share farming?

No. The webinar describes them as different structures.

A partnership involves partners carrying on the farming business together. In a share-farming arrangement, two separate farming businesses can operate on the same land without creating a partnership or company.

Each share farmer remains responsible for their own tax affairs. The structure therefore needs to reflect how the farming operation actually works rather than simply which treatment appears preferable for tax.

Should a farmer consider incorporating when profits fall?

A lower-profit year may provide an opportunity to review business structure, but it does not mean incorporation is automatically appropriate.

The webinar discusses potential advantages such as the corporation-tax treatment of trading profits, limited liability and succession planning. It also identifies disadvantages including additional compliance, possible loss of reliefs and tax consequences when transferring assets.

Accountants should model the overall position before recommending a change, including land ownership, capital allowances, income averaging and succession plans.

What should accountants prioritise when reviewing farming clients in 2026?

The webinar points to four practical areas: review preliminary tax where current profits have fallen; reconsider income averaging and stock relief; examine VAT claims according to the precise expenditure incurred; and review Agricultural Relief calculations carefully where succession is planned.

Business structure should also be considered where circumstances have changed.

The underlying principle is to work from the client's current farming and financial position rather than automatically repeating last year's tax treatment.

The contents of this article are meant as a guide only and are not a substitute for professional advice. The authors accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article.