The timely transfer of farm businesses from one generation to the next is an important element in the successful continuation of family farms. Government policy recognises this and various incentives are in place to encourage farmers to pass on their farms to the next generation. These include:
- Enhanced Stock Relief for young trained farmers
- Succession Farm Partnerships
- Stamp Duty Relief for young trained farmers
- Agricultural Relief from Capital Acquisitions Tax
- Retirement Relief from Capital Gains Tax
However, before any transfer of a farm business takes place, it is important to protect the future income of the senior generation. It is best if parents can remain financially independent so that they can fund reasonable life expenses without having to depend on family for financial support. Indeed, the financial independence, security and peace of mind of the senior generation is often pivotal to the successful transfer of farm businesses.
Succession Planning for Family Farms
Careful succession planning can help achieve a successful inter-generational transfer. It is important that your succession plan protects both the family and the farm. So, one of the first considerations should be the future income of the senior generation. Tax-efficient options to consider include Succession Farm Partnerships and Leasing.
Succession Farm Partnership
This is an incentive to encourage older farmers to enter partnerships with young trained farmers. The senior generation transfers at least 80% of farm assets in the partnership to the young trained farmer after three years but within 10 years of the partnership being formed. There is an annual tax credit of €5,000 for Succession Farm Partnerships for the first five years of the partnership. The credit is split amongst the partners in line with their profit-sharing ratio. No tax credit is available where the successor is over 40 in the year of assessment.
Leasing of Farm Land
This can provide tax-free income for the retiring generation. The Income Tax relief for long-term leasing of farmland is available provided certain conditions are met. To qualify for the relief the lease must be on an arm’s length basis and in writing. The lease must be for a period of at least 5 years and the land must be farmed. The tenant cannot be connected to the landowner.
Income Tax Thresholds for Long-Term Land Leasing
|Term of Lease
|Tax Free Income p/a €
Income Tax Exemption
When planning for succession, it is also important to consider the Income Tax implications of any decisions you make. A single person aged 65 or over does not pay any income tax if their total income is less than €18,000 per annum. The limit is €36,000 for a married couple.