Question: I was advised to add my daughter’s name to my herd number this year to qualify for the National Reserve and the Young Farmer Top Up Scheme. I read recently that farming under a joint herd number could be seen to be a partnership and consequently, it could pass ownership of farming assets to my child.

Have you any advice on how to set ourselves up with as little tax and legal implications as possible? Do I need a written agreement stipulating who owns what so everyone is clear on where they stand?

Answer: Given the fact that most farms operating under a joint herd number could be regarded as a partnership, it is advisable to have an agreement drawn up to specify who owns what and what is to happen if or when the joint herd number/partnership comes to an end.

There is a sample agreement available on the Teagasc website which ensures that ownership of land and entitlements stays with the parent.

The criteria

The Department of Social and Family Affairs, and Revenue have clarified the criteria used by them in determining the existence of a partnership in a farming situation. They have stated that they deem a partnership to be in existence if some of the following factors apply:

• There is a written partnership agreement.

• Each partner writes cheques on the business account in his/her own right.

• There is a joint business account.

• It is clear to those doing business with the operation that a partnership exists.

• Business accounts/activities are in joint names of the partners.

• Each partner makes a significant contribution to running the business.

• The business is owned jointly by the partnership.

• The profits and losses of the partnership are shared by each partner.

The same criteria may be applied in the context of joint herd numbers. To apply for the National Reserve/Young Farmer Scheme under the joint herd number category, the following is required:

• A bank statement or letter from the bank confirming the young farmer’s name is on the bank account to which direct payments would be paid.

• A declaration completed by each member of the group and witnessed by a solicitor confirming that the young farmer has effective control, either solely or jointly, with other members in terms of decisions related to the management, benefits and financial risks to the group.

As a result, a joint herd number has many of the characteristics of a partnership and could be deemed to be so.

Who owns the stock?

A herd number issued by the department to any person acting as the keeper does not infer ownership of lands or animals tested under that herd number. The Department of Agriculture has produced guidance on the issue where it takes no responsibility for deciding who owns what in a herd number.

Consequently, if either party in a joint herd number claims ownership to stock, this should be recorded in a written agreement between the parties, otherwise stock could be divided up according to the profit sharing ratio.

So what are the outcomes of not having a written partnership agreement?

Under the Partnership Act 1890, where a partnership is dissolved, a partner is entitled to have the partnership assets sold, the liabilities paid off and the surplus divided in the profit sharing ratios. If the parties do not want the default provisions of the Partnership Act 1890 to apply, they should enter into a written partnership agreement specifying what the parties have agreed.

The Teagasc farm partnership agreement provides that the lands, milk production rights and BISS entitlements remain in the holding of the owner but are made available for use by the partnership.

Stock and machinery are treated a little differently – they become part of the partnership assets but the owner gets credit for the value as an initial capital contribution. Therefore, it’s not a case that the other partner will automatically inherit the land, stock etc and it depends on what’s in the parent’s will as to who will inherit the farm.

It might be worth looking into forming a registered farm partnership where you could secure additional stock relief and double the ceiling for the TAMS grant. You could recoup 50% of the cost of setting up the contract through a Department of Agriculture grant.

Disclaimer: The information in this article is intended as a guide only. While every care is taken to ensure accuracy of information contained in this article, Aisling Meehan, Agricultural Solicitors and Tax Consultants does not accept responsibility for errors or omissions howsoever arising. Email aisling@agrisolicitors.ie