Incentive opens up farm transfer scope
The new tax credit aimed specifically at Succession Farm Partnerships kicked in officially on June 1, with the opening for registrations.
The measure is designed to incentivise transfer of farms to the next generation.
The incentive comes in the form of a €5,000 tax credit available each year for a maximum of five years, which the farmer and his or her
successor share, in their profit sharing ratio.
A further tax incentive is that the partnership can benefit from the 50% stock
relief available to regular
registered farm partnerships.
Outside of the tax incentives, there are other financial incentives, such as potential top-ups to the Basic Payment Scheme (a young farmer’s top-up), and access to higher TAMS grant thresholds.
Apart from these direct
incentives, supporters of the scheme suggest there are other significant benefits of operating under a partnership, such as sharing of decision making, a level of
certainty and formal planning of the succession process, and an incentive for the successor to commit to the business and to take responsibility.
Farmers and their
successors sign up to an agreement to transfer at least 80% of their farm assets after a period of at least three years and within a maximum period of ten years.
The successor must hold an agricultural qualification, must be under 40 years of age, and must be entitled to hold at least 20% of the profits, in order to benefit under the scheme.
A farm plan must be submitted to Teagasc for certification.
The succession farm partnership tax credit is not available where the successor is over 40 years of age in the tax year.
In practical terms, a farmer and their successor entering a succession farm partnership agreement, where the
successor is at, say 38 or 39 years of age, is only likely to benefit from one or two years from the €5,000 tax credit,
before the age cap kicks in.
Meanwhile the stamp duty age limits for young trained farmers’ exemption from stamp duty remains at 35 years of age.
Therefore, in practical terms, where a farmer and their successor wish to avail of the full succession tax credit (€5,000 in each of five years), and the young trained farmer exemption from stamp duty, the ideal time to
commence a succession farm partnership would be at the point in time where the
successor is under 30 years of age.
The farmer and the
successor need not even be from the same family and, in fact, need not be related at all.
This opens up the potential scope for succession farm partnership to be used
between neighbours looking to retire in the medium term and young farmers looking to establish their own holding.
The succession farm partnership does contain a legally binding agreement to transfer the farm within a set period of time, but the transfer can be either by way of gift or sale.
The inclusion of the option to sell opens up the scope for such agreements to be used in family and non-family agreements.
In practical terms, farmers and their successors should firstly obtain relevant tax and legal advice, and satisfy themselves that the partnership approach is the correct one for them.
Once a decision to establish a partnership is confirmed, a partnership agreement should be drawn up, an application should be made for the existing entitlements to be transferred to the new partnership herd number, and the partnership should register for a tax number and apply for its own bank account.
A specimen partnership agreement is available from the Department of Agriculture website with a side-by-side “On-farm Agreement”, which deals with the practicalities of the day-to-day operation of the partnership.
In the event that the partnership is dissolved, the tax benefits are unwound.
A repayment of the tax credit must be made by the persons responsible for the dissolution of the agreement.
Grant aid of up to €2,500 covering part of the legal, advisory and financial
services costs incurred in the drawing up of the Partnership Agreement is available for new Farmer Partnerships successfully registered on the Department’s register.
Applications for such grant-aid are to be submitted to the Farm Partnership Registration Unit.
Further details on the new tax credit are available from the Department of Agriculture’s website.
As always, individuals should obtain relevant professional advice relevant to their own circumstances.
