Farm Legal Advice: Getting your farm succession right

Teagasc Financial and Farm Management Specialist James McDonnell explains how to all but eliminate farm transfer tax liabilities

With Law Society rules, your children that are receiving the benefits have to hire their own solicitor.

How to all but eliminate farm transfer tax liabilities was recently explained by Teagasc Financial and Farm Management Specialist James McDonnell in Part 2 of a four-part podcast series on farm succession. But if the succession is not well planned, there can be a large tax bill.

“The first step I would see is writing the will,” said James. "The second step then is figuring out what the parents want to do with the farm, and the third step is to look at the tax implications. Once you have that figured out, then you can go and sign the legal instruments.”

James suggested using the services of a good accountant, to advise on the tax implications in particular. “You need to talk to your accountant in relation to capital taxes, and if your accountant isn’t good on capital taxes, maybe they’ll refer you to one who is,” he said.

“You also need an auctioneer to value all of the property that you’re going to transfer because a tax return will need to be done on it. And you need to take those valuations to your accountant, to work out the tax figure. 

If the taxes are going to be very high, based on the transfer you’re going to do, well then you need to ask your accountant if there’s a different way. 

"Should the assets go in slightly different directions? Is there another way of tweaking the plan to minimise the taxes? And if there is, well that should be considered, and you go back and communicate with your family,” James said.

The final step might be talking to the solicitor. The solicitor is involved at the start in helping you write your will. You may also want some legal security. Maybe you’re transferring the farm and the farmhouse to the new farmer, but you want right of residence with the dwelling house. There might be legal securities as part of the transfer, a solicitor can help you out there.

"You have to make sure every i is dotted, every t crossed and everybody is happy with the proposal.

"With Law Society rules, your children that are receiving the benefits have to hire their own solicitor. and they will need to look over and get advice from their solicitor around the gifts that they are receiving. Is it a wise decision to receive the farm, and what limits are on it,” James said.

Grants

“There is a grant available for people to get advice. It was announced by the Minister of Agriculture back in 2023. So if you were to travel around and go meet your solicitor and your accountant and go talk to your advisor, and let’s say they charge you €3,000 for a few hours’ advice. It might be five or six or 10 hours of advice. 

"If written on your receipt is Farm Succession Advice, you can present that to the Department of Agriculture's Succession Planning Advice Grant scheme. So you submit a receipt to Dublin into that scheme, and they will send you back 50% of your money. You can claim up to €1,500,” James explained. 

The money will be refunded in the first quarter of the next year.

There is also a 50% grant available to set up a Registered Farm Partnership. “The typical partnership costs about €3,000 to set up,” James said.

Taxes

What taxation might be entailed in a transfer today of, for instance, a farm inherited in 1970, and which is now valued at €1 million? 

“If we take a €1m value farm that was inherited 50 years ago, and you now want to transfer it to your child, and your child is just under 35, there are three taxes, capital gains tax, acquisitions tax and stamp duty. If all of the timing is done correctly, there should be no tax due,” James said.

Age is a key consideration. “There’s Young Trained Farmer relief from Stamp Duty if the farm is transferred to the young person if they have their Green Cert before the age of 35. Once they pass the age of 35, then they’re on the hook for Stamp Duty. The Stamp Duty rate is 7.5%,” James explained. 

That would amount to €75,000 on a farm valued at €1m. “The parties can claim a relief called Consanguinity Relief which at the current moment in time reduces the rate of Stamp Duty to 1%. So, 1% of €1m is €10,000. So anyone over 35 that’s going to receive a farm from a live person will claim Consanguinity Relief.

Whereas the Consanguinity Relief currently provides for a 1% rate of Stamp Duty to apply where a transfer of agricultural land (by sale/purchase, exchange or gift) is made to certain close relations, such as mother to son or uncle to niece, this rate may change in future Budgets. “The Consanguinity Relief is reviewed in three-year batches in the Budget, every third year”, said James.

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"There’s no stamp duty on death. If the transfer is delayed until a will situation, well then there’s no stamp duty,” James explained.

“The threshold for Capital Acquisitions Tax [CAT] from a parent to a child is €100,000,” James said. But if the recipient does not have considerable non-agricultural assets, reliefs are available. 

“If, after I receive the gift, 80% of my total assets are agricultural, I can claim Agricultural Relief. That allows me to reduce the value of the gift to me from €1m down to €100,000,” he explained.

The Budget in October 2024 set a new Group A threshold (for inheritances from parents to children) for the payment of CAT, increasing it from €335,000 to €400,000. Since €100,000 is less than that €400,000 threshold, no CAT will apply, if a son or daughter is inheriting. 

“So that farm could potentially come across tax-free to the young person,” James explained. “If the person is over 35, then you’re caught for 1% Stamp Duty.”

Capital Gains Tax

Capital Gains Tax (CGT) is payable on any capital gain (profit) made when one disposes of an asset. It is the chargeable gain that is taxed, not the whole amount received. The chargeable gain is usually the difference between the price you paid for the asset and the price you disposed of it for. 

“The parents can claim Retirement Relief against CGT, once they own and farm the land for 10 years prior to transfer. In some cases, people have leased out the farm. If the farm is on a long-term lease of six years or longer and a number of those years have been completed, you can still claim Retirement Relief, provided that the leases do not exceed 25 years. 

"So you could do three or four leases. If you did four six-year leases, you would then want to transfer it, because once you go over the 25-year limit, you have to go back and farm it for 10 years again,” James explained.

Where a son aged 60, owning property worth €500,000, is gifted a farm valued at €1m by his 92-year-old parents who are still alive, he would not qualify for Agricultural Relief. The parents will not be liable for CGT, as they have owned and farmed the land and did not lease it for more than 25 years cumulatively.

But 1% Stamp Duty will apply (€10,000), plus CGT. “He can receive €400,000 from his parents tax-free. There’s €600,000 left that’s taxable. The tax rate is 33%, that comes to €200,000,” James explained.

“So the difference between planning and not planning is €210,000," Michael remarked. That tax bill is roughly the equivalent of selling 20 acres of the farmland.