Farmer partnerships have become more viable than ever, with proposals in the recent budget to introduce a tax credit of up to €5,000 per annum for five years.
That follows the extension of the benefits of registered farm partnerships beyond the dairy sector, in the previous budget.
Here, Damien O’Sullivan explains how farmers can take advantage of the benefits of a farm partnership.
Damien is a director with Baker Tilly Ryan Glennon, one of Ireland’s top 10 firms of accountants, tax and business advisors.
My neighbour has told me I should form a farm partnership with my son. What are the advantages of this?
In recent years, significant changes have been introduced in successive budgets, in order to promote the development of the farming sector, and in particular the transition of the farm to the next generation.
Last year, in his budget, Minister Noonan made major changes to the Capital Gains Tax regime for farmers, and extended the benefits of registered farm partnerships beyond the dairy sector.
The recent budget contains proposals to introduce a tax credit of up to €5,000 per annum for five years for farming partnerships, but we will need to wait until the Finance Bill is published to see the full details of this.
A farm partnership is simply a pooling of resources by two or more people in order to benefit from the synergies that may be achieved. Assuming that one of the partners qualifies as a “young trained farmer”, there are financial advantages to be enjoyed, as well as commercial benefits.
From a commercial perspective, the forming of a partnership with a family member should encourage him/her to take a more active part in the operation of the business.
It offers them an opportunity to cut their teeth in the business world, while giving you the reassurance of being able to contribute to every decision.
Having the benefit of your contribution can only help to prepare him/her for the day they assume full control of the farm.
In addition, the prospect of participating in the profits of the enterprise should encourage him/her to ensure that each decision is made with a keen eye on the bottom line profit.
From your perspective, having the input from someone who has undergone training and is coming to the business with new ideas can only be positive. However, you will only receive honest input if you are prepared to listen, so if you are to proceed down this path, then it must be as true business partners.
What are the financial advantages of a registered farm partnership?
A registered farm partnership will enjoy taxation benefits as well as enhanced Department of Agriculture payments.
From a tax perspective, the sharing of the farming profits between a parent and child should see a reduction in the overall tax liability.
Assuming your child is single, they will pay tax at 20% on the first €33,800 of their share of the farm profits. If your spouse has no income, you will pay tax at 20% on the first €42,800.
This means that farming profits of up to €66,600 could be charged to tax at the 20% rate.
If your spouse was also to become a partner in the business, that figure could be as high as €101,400.
Enhanced stock relief is also available to registered farm partners.
A young trained farmer will enjoy stock relief of 100% of the increase in value of livestock for the first four years.
You too will also benefit from 50% stock relief, an increase from the normal rate of 25%.
However, there are limits on the value of the relief that may be claimed.
Registered farm partnerships can qualify for a basic payment scheme top-up (25%) of up to €60 on the first 50 activated entitlements.
This can amount to a payment of €3,000 for up to five years.
In addition, if the young trained farmer owns or leases land that has no, or even low level entitlements, they can apply to have new entitlements allocated (or low level entitlements topped up) out of the national reserve.
In terms of capital expenditure, a registered farming partnership can qualify for enhanced levels of grant assistance for qualifying capital expenditure.
How do we set up a partnership?
Before any of the benefits outlined above will apply, the partnership must be properly constituted. This will involve:
a) registering the partnership with the inspector of taxes,
b) drawing up a partnership agreement and an on-farm agreement,
c) adding the new entrant’s name to the herd number,
d) opening up a partnership bank account,
e) registering the partnership on the DAFM register.
If you proceed with a partnership, there is a grant available to assist with the cost of professional fees incurred in setting up the farming partnership. The grant, which is paid at the rate of 50% of the cost incurred, in subject to a maximum payment of €2,500.
While the benefits outlined above are many, a farm partnership is not something to be rushed into.
It may be worth considering waiting until the details of the new €5,000 tax credit are available to see if this may be of benefit to the business.
Time should be taken to get good advice to ensure your circumstances are suited to a partnership which is, after all, a binding legal agreement.
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