Question: My father put me on the herd number a while back, and I didn’t think much about it at the time. However, I got a shock a couple of weeks ago when I received a letter out of the blue from Revenue.
I haven’t received any income from the farm as a result of being added to the herd number, but the letter says that I have to file an income tax return for multiple years. Can you shed some light on this for me? The situation has me feeling confused and a little anxious.
Answer: Unfortunately, your story isn’t an unusual one and many have been caught with the same issue.
Here’s why – when a parent adds their child to a herd number, it’s often part of a broader strategy that includes succession planning, tax efficiency and eligibility for agricultural grants.
Adding a child to a herd number is a simple thing to do, but the decision itself actually comes with significant implications that should be carefully considered in advance.
I know the ‘in advance’ ship has sailed for you, but this information will still help you better understand your situation and what’s expected of you. First up, let’s look at the reasons for adding a child to the herd number.
1. Succession planning: It’s a step towards transferring the farm’s ownership and operations to you in the future. This prepares you to take over the farm, ensuring its continuity within the family.
2. Eligibility for grants and schemes: Being on the herd number can have many advantages when it comes to grants and schemes.
For example, it may qualify you for government programmes aimed at supporting young farmers, like the Young Farmer Scheme or National Reserve. These programmes can provide financial support that you can’t access unless you’re listed on the herd number. So, it makes sense to get set up so you’re ready to go.
3. Tax efficiency: I know you haven’t yet received income from the farm, but tax efficiency is another key reason why many farming families take this step. Splitting the farm’s income between you and your father could help reduce overall tax liabilities. It can also help with future tax planning for issues like Capital Gains Tax or Inheritance Tax.
While eligibility for grants and schemes is a huge positive of being added to a herd number, you should be aware that timing matters. Once you’re added to the herd number, your eligibility for certain young farmer entitlements has a time limit.
The benefits provided by schemes like the Young Farmer Scheme or National Reserve are often only available for a few years. This means that the timing of when you’re added to the herd number is crucial, as it could affect how long you can benefit from these programmes.
Partnership and tax implications
The reasons for adding a child to a herd number are solid and come with plenty of potential future benefits for both the parent and child.
However, there are several tax and legal watchouts.
Marty Murphy, head of tax, Ifac.
When you’re added to a herd number, it can unintentionally create an unregistered partnership under the 1890 Partnership Act. This has several important consequences that you need to know about:
1. Profit sharing: Under the law, you and your father might be considered equal partners, meaning the farm’s profits could be split 50:50. Be aware that even if you haven’t actually received any income, you could be liable for taxes on your share of the profits. A registered partnership can define a different split, but in the absence of that, the unregistered default will simply split income down the middle.
2. Tax liabilities: The partnership could expose you to various taxes, such as Income Tax on the profits, Capital Gains Tax on the transfer or sale of farm assets, or Capital Acquisitions Tax if the arrangement is viewed as a gift of assets and if it exceeds the allowable tax-free threshold.
3. Legal consequences: The partnership might also grant you legal ownership rights over farm assets, which could complicate inheritance plans or lead to disputes, if for example, it is not managed with a formal agreement.
This probably all sounds a little daunting, but the intention isn’t to overwhelm you, just to make you aware of possible unintentional consequences.
People don’t always realise that setting up a joint herd number is actually a significant business decision.
In your situation, it would be advisable to seek advice to find out exactly where you stand from a tax and legal point of view.
That way, you’ll be taking the first steps to getting past this unexpected curveball and you’ll be more prepared for the future, as you move forward with your father and the farm.
If you don’t register a partnership that defines how your profits are split, you could unintentionally create an unregistered partnership, leaving you eligible for tax on 50% of the farm profits.In addition to an Income Tax liability, the partnership could also expose you to Capital Gains Tax or Capital Acquisitions Tax.Ideally, you should seek advice before creating a joint herd number. Read more
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Question: My father put me on the herd number a while back, and I didn’t think much about it at the time. However, I got a shock a couple of weeks ago when I received a letter out of the blue from Revenue.
I haven’t received any income from the farm as a result of being added to the herd number, but the letter says that I have to file an income tax return for multiple years. Can you shed some light on this for me? The situation has me feeling confused and a little anxious.
Answer: Unfortunately, your story isn’t an unusual one and many have been caught with the same issue.
Here’s why – when a parent adds their child to a herd number, it’s often part of a broader strategy that includes succession planning, tax efficiency and eligibility for agricultural grants.
Adding a child to a herd number is a simple thing to do, but the decision itself actually comes with significant implications that should be carefully considered in advance.
I know the ‘in advance’ ship has sailed for you, but this information will still help you better understand your situation and what’s expected of you. First up, let’s look at the reasons for adding a child to the herd number.
1. Succession planning: It’s a step towards transferring the farm’s ownership and operations to you in the future. This prepares you to take over the farm, ensuring its continuity within the family.
2. Eligibility for grants and schemes: Being on the herd number can have many advantages when it comes to grants and schemes.
For example, it may qualify you for government programmes aimed at supporting young farmers, like the Young Farmer Scheme or National Reserve. These programmes can provide financial support that you can’t access unless you’re listed on the herd number. So, it makes sense to get set up so you’re ready to go.
3. Tax efficiency: I know you haven’t yet received income from the farm, but tax efficiency is another key reason why many farming families take this step. Splitting the farm’s income between you and your father could help reduce overall tax liabilities. It can also help with future tax planning for issues like Capital Gains Tax or Inheritance Tax.
While eligibility for grants and schemes is a huge positive of being added to a herd number, you should be aware that timing matters. Once you’re added to the herd number, your eligibility for certain young farmer entitlements has a time limit.
The benefits provided by schemes like the Young Farmer Scheme or National Reserve are often only available for a few years. This means that the timing of when you’re added to the herd number is crucial, as it could affect how long you can benefit from these programmes.
Partnership and tax implications
The reasons for adding a child to a herd number are solid and come with plenty of potential future benefits for both the parent and child.
However, there are several tax and legal watchouts.
Marty Murphy, head of tax, Ifac.
When you’re added to a herd number, it can unintentionally create an unregistered partnership under the 1890 Partnership Act. This has several important consequences that you need to know about:
1. Profit sharing: Under the law, you and your father might be considered equal partners, meaning the farm’s profits could be split 50:50. Be aware that even if you haven’t actually received any income, you could be liable for taxes on your share of the profits. A registered partnership can define a different split, but in the absence of that, the unregistered default will simply split income down the middle.
2. Tax liabilities: The partnership could expose you to various taxes, such as Income Tax on the profits, Capital Gains Tax on the transfer or sale of farm assets, or Capital Acquisitions Tax if the arrangement is viewed as a gift of assets and if it exceeds the allowable tax-free threshold.
3. Legal consequences: The partnership might also grant you legal ownership rights over farm assets, which could complicate inheritance plans or lead to disputes, if for example, it is not managed with a formal agreement.
This probably all sounds a little daunting, but the intention isn’t to overwhelm you, just to make you aware of possible unintentional consequences.
People don’t always realise that setting up a joint herd number is actually a significant business decision.
In your situation, it would be advisable to seek advice to find out exactly where you stand from a tax and legal point of view.
That way, you’ll be taking the first steps to getting past this unexpected curveball and you’ll be more prepared for the future, as you move forward with your father and the farm.
If you don’t register a partnership that defines how your profits are split, you could unintentionally create an unregistered partnership, leaving you eligible for tax on 50% of the farm profits.In addition to an Income Tax liability, the partnership could also expose you to Capital Gains Tax or Capital Acquisitions Tax.Ideally, you should seek advice before creating a joint herd number. Read more
The tax implications of forestry
Money Mentor: understanding the mechanics of loan pricing
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