You will no longer be in control of the farm business when you transfer the family farm. Can you accept that you will have to stand back and let the control you had at the farm go, or change the input you have?
You will need to look at somebody else making the decisions that you have been making all of your life, and the style of the next generation may not be similar to yours.
Change can be challenging so you need to ask yourself:
- Are you ready to give up effective and long-term control?
Have you addressed any possible future conflict, stress or misunderstanding with other family members?
- Do you wish to transfer land or a site to any of your children?
- What provisions are being made for your spouse, if the farm is changing to the next generation, in the event of either of your demise?
- Is the farmhouse staying with the farm or is that to be retained separately in your name/s?
- Do you have sufficient income to support you through your retirement years, have you considered additional costs of living in the event of medical or care needs in later life.
Considerations must be given to explicitly identifying the land or site on a map and transferring it before the transfer the family farm. Any proposed changes to the property must take in to account the business structure as part of your estate and succession plan as they are related.
Proper planning is a necessity for a successful retirement and protecting your future; here are a few more considerations before you make decisions on transferring your farm.
The financial position of the next generation
As a retiree, your financial situation is a huge factor to be considered. It would be best if you also gave thought and planning to the position of the person whom you propose transferring the farm. Is the farming enterprise big enough and sufficient to generate an adequate income for them or, indeed, two of you if you intend remaining on the farm in a work capacity and earning from it? Does the next generation farmer have a mortgage and other financial commitments? Will the farm be able to meet those financial commitments?
There are always taxation implications in the transfer of any assets and a transfer of the family farm is no different; Capital Gains Tax (Capital Acquisitions Tax) and stamp duty need to be considered. There are very generous allowances under each of these taxes, and each circumstance needs to be looked at individually. There are specific trigger dates to maximise the tax efficiencies available – 66 years of age for the retiree and 35 years of age for the young farmer. Income tax can also be a significant factor to consider when planning for retirement. The Taxation Rules will apply to anybody transferring the farm, and the Commencement Rules will apply to a young farmer taking over. These need to be considered with your accountant. Will the young farmer qualify for stamp duty relief under the Young Farmer relief?
Teagsc defines a Farm Partnership as “a business arrangement where the profits from that business are shared among the partners in the partnership”. Since 2002, partnerships have been used as a structure to amalgamate two or more farming businesses into one structure, known as inter-family partnerships (between two farm families).
In recent years the Government has put a big emphasis on more collaborative farming. There are many reliefs available to partnerships to maximise the business of farming from a tax-efficient stance.
If a partnership is formed and if one of the partners qualifies as a young trained farmer, there are particular requirements to be met to avail of the tax advantages. The young farmer must be added to the existing herd number using an ER1.1 form. The young farmer must be named on the partnership bank account and sign a legal declaration that they have effective and long-term control, either solely or jointly. Payment of the Young Farmer top-up may be obtained on up to a maximum of 50 activated entitlements declared by the partnership in the year of application.
However, as a farm partnership is a business like any other business involving more than one person it should have an agreement in place like any other business arrangement, there must be a way out in case it doesn’t work out as the partners envisaged. More particularly as the business comprises of a family often a clear roadmap to exit the partnership is more than helpful when tensions are high. A Partnership Agreement should provide for all foreseen difficulties that could arise in the future. Like any business agreement, it should contain a clear conflict-resolution process for the smooth running of the partnership and recommend mediation to support family relationships and the most desired outcome for people involved and the farm itself.
Every Farm & Farming relationship is different – individual advice is crucial when you prepare to transfer the family farm. Contact us for a consultation.