The report got me thinking about our succession patterns in Ireland.
As bourne out by CSO statistics, the transfer of land to the next generation usually occurs relatively late in life, and the land is usually transferred to a male successor.
Even today, many farmers hope to keep the farm in the family name. For many generations the typical succession involved the transfer of the farm to a male heir, and in some regions it was traditional to transfer to the eldest male.
This succession pattern is a throw-back to ancient customs, but Ireland is not unique, indeed the custom is so popular on an international level that it even has its own title, that being “primogeniture”.
From a historical perspective, it could be argued that such a system could be justified. Dividing the farm amongst many children would reduce the holding to sub-viable units, and transferring to a male heir may have made sense in an era of higher physical labour requirements in farming, with the constraints of motherhood seen as an obstacle to continuing the farming trade.
Ireland’s tradition contrasts significantly with other close EU neighbours. In some of these countries, each child has equal rights to a parent’s estate.
Closer to home, the real life question of inheritance policy is a difficult decision that faces all farm families sooner or later.
On a practical level, the family succession plan should be prepared as early as possible; this should be the case even where the particular successor who is to take on the family farm is not readily identifiable.
It is typical to see family situations where investment and reinvestment has been totally focused inside the farm gate. For many of us farmers, at the day-to-day level, investment and reinvestment within the farm is easily justified as serving the purpose of increasing farm profit on a longer-term basis, improving farm efficiency, reducing the farm workload, plus the benefit of keeping the tax bill down.
However, over time, this strategy can result in a situation where one child is set to inherit a valuable asset, with other children not receiving any inheritance of any significance.
Of course, there is no perfect strategy, and dividing a farm into multiple units can mean the difference between a viable and non-viable farm.
Should the farm stay intact, with farm investment postponed to allow for a fairer succession strategy?
If a farm is relatively small to begin with, should each child get more of an equal share, given that no one child will be dependent on the farm for their living?
Reflecting on real life situations which I have encountered, the most sensible approaches involved prioritising education of all children. With this approach, expenditure on farm improvements and developments may need to be put on the back burner for the short to medium term, but ultimately children can reap potentially much greater benefits of increased wages and increased employability over their entire working lives.
In some situations, where the farm is not viable, and where children are not actively farming, retiring farmers are giving serious consideration to selling the farm and dividing the proceeds between their children. The advantage of this approach is that the retiring farmer may be in a position to sell the farm entirely tax-free (there is a capital gains tax exemption of up to €750,000 available for certain disposals). And inheritance tax rules allow for a transfer of up to €225,000 to each child tax-free over their lifetimes.
Where proceeds of a farm sale are divided, well educated children can have a comfortable and successful life, free from the financial pressures of those burdened with huge mortgages.
The key point in succession is to develop a plan early. Ideally, the plan should incorporate not only the farmer’s intentions but also the views of spouses, and children.
Finally, obtaining appropriate tax advice is a key factor in ensuring a tax-efficient property transfer.
* More on women in agriculture next week.