A new incentive for succession planning

There was a lot of interest in the new succession partnerships at the recent succession planning workshops. To answer the more detailed questions, Irish Country Living asked Thomas Curran, Teagasc farm business structures specialist, about getting around the new scheme.

What is new about the Succession Farm Partnerships?

They involve a new income tax incentive that is available to farmers, based on the successful registration of a Succession Farm Partnership with the Department of Agriculture.

The objective of the incentive is to encourage succession planning through the transfer of farm assets to the next generation in a planned way, while also providing a level of protection for the transferors.

Under the scheme, an annual income tax credit of €5,000 is available to the partners in the succession partnership for up to five years after making a successful registration.

What are the key requirements of a Succession Farm Partnership?

The four key requirements are:

1 The “farmer” must have farmed at least three hectares for two years prior to the formation of the Succession Farm Partnership.

2 The “successor” can be a farmer and/or a person who has completed their agricultural education; is under 40 years of age at the beginning of each tax assessment year; and receives at least 20% of the partnership profits.

3 A Teagasc-certified My Farm My Plan booklet must be completed

4 The farmer and the successor must enter into a legally binding succession agreement where the farmer agrees to transfer at least 80% of the farm assets owned by him/her in the partnership to the successor(s) within three to 10 years of registering the Succession Farm Partnership.

How do I register as a Succession Farm Partnership?

The Succession Farm Partnership must be registered on the Succession Farm Partnership Register by completing the following documents:

I am already in a registered farm partnership, am I eligible for the tax credit?

To be eligible for the tax credit, the existing partnership must be registered as a Succession Farm Partnership.

Can I enter a Succession Farm Partnership with an unrelated young farmer?

Yes. A farmer can form a Succession Farm Partnership with an unrelated, qualified young farmer. In this case, the farm assets can be gifted or sold to the successor in the partnership.

What advice is required?

As part of the process of completing the succession agreement, it is vital to seek the advice of your Teagasc advisor; agricultural consultant; solicitor; accountant; and also with any banking institution that may have a charge/security interest in lands that are intended for transfer.

Is it important to update or make a will?

It is vital that any previous will made is updated in line with the Succession Agreement to ensure that both documents are consistent. In situations where no previous will exists, it is imperative to ensure that a will is put in place that is consistent with the terms of the succession agreement.

What happens after the transfer of farm assets has taken place?

There are two possible options available after the transfer of assets has taken place, as specified in the succession agreement. They are: the partnership could continue for a further period of time involving the same partners; or the partnership could end after the transfer of assets has taken place.

Where the partnership has ended, the successor can farm in his/her own right using the assets transferred. Where the partnership is continuing, the partnership agreement and supporting documentation must be updated to reflect the change in ownership of assets or capital in the partnership.

Can I continue to claim the tax credit after the farm has transferred?

Where the farm assets are transferred to the successor before the full tax credit is claimed, the credits can continue to be claimed after the land transfer, provided that the partners remain eligible and that the land is not transferred within three years of first registration.

I am farming through a limited company. Am I eligible?

No. Farmers or successors who are farming through a limited company are not eligible to form a Succession Farm Partnership

If the farm assets do not transfer, do I have to refund the tax credit?

Yes. A clawback of the amount of tax credits claimed will apply where the farm assets do not transfer, as specified in the succession agreement.

When do I have to transfer my assets to my successor?

As part of the succession agreement, the farmer agrees to transfer at least 80% of the specified farm assets to the successor(s) within three to 10 years of first registration

Can I name more than one successor under the scheme?

Yes, the identified successor must be partners in the partnership and also included in the succession agreement.

I am farming part-time. Can I claim the income tax credit against off-farm income?

No, the income tax credit can only be claimed against farm income. The farm business must make a profit to avail of the tax credit.

What is the upper age limit to claim the tax credit?

As a registered succession farm partnership, the income-tax credit can be claimed where all successors in the partnership are under the age of 40 at the start of the tax assessment year.

Is the tax credit shared between the partners in the partnership?

Yes, the €5,000 tax credit is shared on the same basis that profits are shared in the partnership.

How do I find out more about the tax credit?

Speak to your Teagasc advisor or consultant, your solicitor and your accountant. Visit www.teagasc.ie for more details. CL