“I am currently farming but wish to transfer ownership of the farm to my son in the next couple of years. My son has recently completed his course in agricultural college and has returned home to help out on the farm. I am unsure when or how to go about starting the conversation about the farm transfer. Have you any advice?”

Legal, tax and practical considerations

There are various legal, tax and practical considerations to be mindful of in planning to transfer the farm to the next generation.

From a legal viewpoint, assuming that the land is registered in your name, it should be straightforward to effect a transfer. However, if the land is registered in the previous generation’s name, there may be a bit of work involved in getting it in to your name so you should act sooner rather than later to rectify this.

There are various legal, tax and practical considerations to be mindful of in planning to transfer the farm to the next generation.

Also if a bank/financial institution has a charge over part of the property to be transferred, you will need to get consent from the bank before you effect a transfer, again something which could take time, so the sooner this is addressed the better.

From a tax viewpoint, assuming the land is being transferred from an owner who is actively farming the land or did actively farm it for 10 years before they first leased it, to a child who will actively farm the land or who will lease it out to an active farmer, there should be little or no tax to pay on transfer.

If there is tax to pay, the transaction may be structured in a particular way to minimise tax so arranging a tax planning consultation is invaluable in this regard.

Availability of €25,000 in tax credits for succession farm partnerships

Succession farm partnerships were announced in the Budget in October 2015, but are still awaiting EU Commission approval. These may be described as a succession planning model that encourages older farmers to form partnerships with young trained farmers and to transfer ownership of the farm, within 10 years, to that young trained farmer.

Each partner in the partnership will be entitled to a tax credit of up to €5,000 per year divided between the partners in accordance with the profit-sharing ratio specified in the partnership agreement. This tax credit is available for five years from the date the partnership is registered unless the successor has reached 40 years of age, in which case the tax credit is payable only for so long as the successor is less than 40 years.

Proposal

It is proposed that a register of succession farm partnerships will be established by the Department of Agriculture similar to the current register for farm partnerships. In order to be registered and avail of the tax credits, the partnership must comply with all of the following conditions:

A) The farm partnership must have at least two members, each of whom shall be a natural person (ie, not a company);

B) Of the members of the farm partnership,

  • At least one partner must have been farming on at least 3ha of land for at least two years immediately before the formation of the partnership (the farmer) and
  • Of the others, each partner must have an agri qualification (ie the green cert or its equivalent) and be entitled to at least 20% of the profits of the partnership and shall not have reached 40 years of age before registration (the successor);
  • Obtain approval from the Minister for the business plan of the registered farm partnership before making an application for registration;
  • The farmer must enter an agreement with the successor to transfer at least 80% of the farm assets to the successor within 10 years of the commencement of the partnership which transfer can begin after year three;
  • The terms of the partnership agreement shall include:

    • A. The farm assets of the partnership on the day the application is made for registration;

    B. Any conditions to which the transfer or sale will be subject;

    C. The year in which the proposed transfer may take place, and

    D. Any other terms agreed between the farmer and successor such as the conduct of the farming trade or creation of any rights of residence in dwellings on the land.

    If at least 80% of the farm assets are not transferred within the 10-year deadline, there will be a clawback of the tax credits claimed. The relief is subject to state aid rules and thus will come into operation once the commencement order has been passed.

    Other benefits of registered farm partnerships

    1) Taxation

  • Access to 100% stock relief on income tax for young trained farmers for four years.
  • Enhanced 50% stock relief for other partners rather than the standard 25%.
  • Maximising low rate of tax through the sharing of profits.

    • 2) Young Farmer Scheme and National Reserve Scheme

  • 25% top-up of national average Basic Payment Scheme payment.
  • Access to new entitlements or top-up on existing entitlements from the National Reserve.

    • 3) Targeted Agricultural Modernisation Scheme grant

  • Doubling of investment ceiling (€80,000 v €160,000).

    • 4) Green Carbon Low Emissions Scheme/Areas of Natural Constraints payment

  • Two applications where partners have been previously separate farmers.

    • 5) Collaborative farming grant

  • 50% grant for the vouched (vat exclusive) cost for each of the legal, advisory and financial services secured in the drawing up of the farm partnership agreement, up to a maximum payment of €2,500.

    • Conclusion

    It might be worth considering paying your son a wage for the first couple of years based on what you/the farm can afford. Thereafter, entering into a succession farm partnership whereby 80% of the assets will have to be transferred to your son within 10 years of the commencement of the partnership. This would facilitate a gradual transfer of knowledge, experience, ownership and control of the farm business and assets which should be in the best interests of both generations. In any event it would be worth devising a plan now in conjunction with your professional advisors, eg accountant/tax adviser, solicitor, Teagasc adviser/agricultural consultant so that both generations know what they are working towards over the next number of years.

    In short

  • If land is registered in your name then it should be fairly straightforward to execute a transfer.
  • From a tax point viewpoint, assuming the land is being transferred from an ownner who is actively farming the land to a child who will actively farm the land, there should be little or no tax to pay on transfer.
  • Succession partnerships are not yet cleared by the EU btu effectively they could help transfer land over a ten-year period to young trained farmers.

    • Read more

    To read the full Farm Law Focus, click here.