Tax wor­ries and in­come fears the big­gest stum­bling blocks to smooth farm trans­fers

Sur­vey high­lights the need for height­ened ac­tion to ac­cel­er­ate suc­ces­sion, writes

Irish Independent - Farming - - FINANCE FARMING - Martin O’Sul­li­van

Icould write an ar­ti­cle ev­ery week on farm suc­ces­sion and I’m not sure I would be able to sat­isfy the de­mand for in­for­ma­tion on this topic. I have dealt with the many as­pects of suc­ces­sion in pre­vi­ous ar­ti­cles, but the queries keep on rolling in.

I re­cently car­ried out a sur­vey of a ran­dom sam­ple of 200 of our farm ac­counts clients for the pur­pose of es­tab­lish­ing where they stood in re­gard to farm suc­ces­sion.

Of the to­tal sur­veyed, 31pc were of an age

(all un­der 55 years) that they felt the is­sue was not yet rel­e­vant to their cir­cum­stances.

How­ever, 69pc agreed that it was rel­e­vant and while they may have made some en­quiries, noth­ing con­crete had ac­tu­ally hap­pened. This was for a va­ri­ety of rea­sons, the most com­mon one be­ing the lack of an ob­vi­ous suc­ces­sor which ap­plied in 47pc of cases. In­ter­est­ingly, in 53pc of cases, there was an ob­vi­ous suc­ces­sor but no ac­tion had been taken.

The rea­sons given for no ac­tion were nu­mer­ous but, gen­er­ally, fell un­der th­ese five head­ings:

• tax­a­tion fears;

• the prospect of in­suf­fi­cient in­come post trans­fer;

• the in­tended suc­ces­sor had not at­tained the nec­es­sary farm train­ing qual­i­fi­ca­tions;

• the trans­feror was await­ing re­ceipt of the State pen­sion be­fore com­mit­ting;

• a re­luc­tance to part with what they saw as their se­cu­rity.

The av­er­age age of the en­tire sam­ple sur­veyed was 58 years, but the av­er­age age of those who had not dealt with the suc­ces­sion is­sue was 65, which meant that a sig­nif­i­cant num­ber of prospec­tive suc­ces­sors are in their 40s. The re­sults of the sur­vey high­lights the need for height­ened ac­tion to ac­cel­er­ate farm suc­ces­sion. Tea­gasc and the Agri­cul­tural Con­sul­tants As­so­ci­a­tion (ACA) have a per­fect op­por­tu­nity to dis­sem­i­nate rel­e­vant in­for­ma­tion through knowl­edge trans­fer (KT) groups and through their one-to-one con­tact with farm­ers.

There is also an op­por­tu­nity in the up­com­ing CAP re­form mea­sures to in­clude some form of re­tire­ment in­cen­tive along the lines of the old Farm Re­tire­ment Scheme. It is in­ter­est­ing to note that none of the 138 farm­ers who had an iden­ti­fied suc­ces­sor had en­tered a suc­ces­sion part­ner­ship. There were a num­ber of rea­sons given for this, but the most com­mon rea­son pro­vided was that the in­tended suc­ces­sor was be­tween 32 and 35 years and would miss out on the Stamp Duty ex­emp­tion if they en­tered a suc­ces­sion part­ner­ship. Clearly, the rules of this scheme need to be re­vis­ited if it is to prove an ef­fec­tive im­pe­tus to farm suc­ces­sion.

I will briefly ad­dress some of the is­sues that were high­lighted in the sur­vey as be­ing the main im­ped­i­ments to hand­ing over the fam­ily farm, namely tax­a­tion, in­suf­fi­cient in­come and farm train­ing.

Tax­a­tion

When it comes to suc­ces­sion, there are three taxes to be con­cerned with, namely Stamp Duty, Cap­i­tal Ac­qui­si­tions Tax and Cap­i­tal Gains Tax.

There will be no Stamp Duty on trans­fers to young trained farm­ers who are be­ing set up for the first time and who un­der­take to farm the land for more than 50pc of their nor­mal work­ing hours. How­ever, Stamp Duty will ap­ply to all trans­fers from liv­ing per­sons to per­sons who are over 35 or who do not pos­sess the nec­es­sary train­ing qual­i­fi­ca­tions or who are not be­ing set up for the first time. Such per­sons will pay 1pc of the value of the prop­erty be­ing trans­ferred pro­vided they are a close rel­a­tive of the trans­feror and that they un­der­take to farm the land for more than 50pc of their nor­mal work­ing hours for a six-year pe­riod or, al­ter­na­tively, lease to a full time or qual­i­fied farmer for the six-year pe­riod. Oth­er­wise, the rate is 6pc.

Cap­i­tal Ac­qui­si­tions Tax will rarely be a prob­lem be­cause of the avail­abil­ity of re­liefs known as Agri­cul­tural Re­lief or Busi­ness Re­lief. That said, there are rules to be obeyed, such as farm­ing the land for the six years fol­low­ing trans­fer in the case of Busi­ness Re­lief. Those who avail of Agri­cul­tural Re­lief have the op­tion of leas­ing the land to a qual­i­fied or full-time farmer.

Cap­i­tal Gains Tax may ap­ply in the un­likely event that the trans­feror is un­der 55 years or where he/she has not owned or has not farmed the land for 10 con­sec­u­tive years since ac­quir­ing it.

In­come post trans­fer

In the vast ma­jor­ity of cases, the trans­feror will have en­ti­tle­ment to the con­trib­u­tory old age pen­sion, but this may not be suf­fi­cient to meet their needs. As­sum­ing they have no per­sonal pen­sion en­ti­tle­ment, in­come sup­ple­men­ta­tion may have to come from the fam­ily farm. This could take the form of a wage, a part­ner­ship salary or per­haps rent for lands which were not trans­ferred.

Mar­ried cou­ples over 65 years can earn up to €36,000 free of tax, which for many may be ad­e­quate to meet their needs. It is worth not­ing that per­sons in re­ceipt of a con­trib­u­tory pen­sion are not sub­ject to means test­ing and may re­ceive un­lim­ited in­come from any source. How­ever, the Qual­i­fied Adult Al­lowance (spouse’s al­lowance) is sub­ject to a means test, but they are still per­mit­ted to earn up to €100 per week with­out af­fect­ing their al­lowance. From next March, mar­ried cou­ples, where both are over 66 and where one spouse is in re­ceipt of the Qual­i­fied Adult Al­lowance, will re­ceive a com­bined weekly pen­sion of €470.80, which amounts to €24,952 per an­num (in­clud­ing the Christ­mas Bonus). Where both spouses qual­ify for the full pen­sion, the an­nual value is €26,320.

Farm train­ing re­quire­ments

The min­i­mum train­ing stan­dard is the QQI Level 6 or higher. This can be achieved by ac­quir­ing a qual­i­fi­ca­tion listed by the Rev­enue Com­mis­sion­ers as a Sched­ule 2B course ( rev­enue.ie). Th­ese cour­ses range from two to five years in du­ra­tion and are on of­fer from UCD, the In­sti­tutes of Tech­nol­ogy and Tea­gasc.

It can also be achieved by be­ing the holder of a qual­i­fi­ca­tion which Tea­gasc cer­ti­fies as the equiv­a­lent of a Sched­ule 2B qual­i­fi­ca­tion or, al­ter­na­tively, be the holder of a letter is­sued by Tea­gasc con­firm­ing sat­is­fac­tory com­ple­tion of a course of train­ing ap­proved for per­sons with learn­ing dif­fi­cul­ties. The Green Cert is the most com­monly used pass­port to qual­i­fi­ca­tion as a ‘Young Trained Farmer’. Th­ese cour­ses are typ­i­cally, but not ex­clu­sively, run by Tea­gasc and can be in dif­fer­ing for­mats, rang­ing from a full-time op­tion based in an agri­cul­tural col­lege with prac­ti­cal ex­pe­ri­ence on the home farm or on an ap­proved farm, to a dis­tance learn­ing op­tion for those peo­ple who al­ready hold a level 6 or higher qual­i­fi­ca­tion. Typ­i­cally, fees for such cour­ses can run up to €3,000.

Costs

The vast ma­jor­ity of trans­fers will have no as­so­ci­ated tax cost if the suc­ces­sor is a young trained farmer. Ac­cord­ingly, the only cost may be your so­lic­i­tor’s fees which will in­clude Land Reg­istry fees and VAT. There is no set fee for this work and you should ne­go­ti­ate a fig­ure prior to com­menc­ing the process.

Pub­li­ca­tions

Tea­gasc have pub­lished a very use­ful book­let called ‘A Guide To Trans­fer­ring the Fam­ily Farm’. This is avail­able on­line and can be down­loaded by googling the ti­tle.

Martin O’Sul­li­van is the au­thor of the ACA Farm­ers Hand­book.

He is a part­ner in O’Sul­li­van Malone and Com­pany, ac­coun­tants and reg­is­tered au­di­tors: www.som.ie.

THERE IS AN OP­POR­TU­NITY IN UP­COM­ING CAP RE­FORM MEA­SURES TO IN­CLUDE SOME FORM OF RE­TIRE­MENT IN­CEN­TIVE

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