Transferring a Farm, Questions and Answers

Q: What are the factors to consider when contemplating transferring the family farm to the next generation?

1. Your Financial Security in Retirement:

Complete a projection of your anticipated income and living expenses during retirement. Will you, have sufficient income to get you through the retirement years? Have you made provisions for higher than normal medical expenses or long-term health care expenses? Remember, people are living longer and this requires more financial planning.

2. Financial Position of the Transferee:

Although your own financial situation is a huge factor to be taken into account, you should also give thought and planning to the financial position of the person who proposes to take over the farm. Will they have a business of sufficient size and efficiency to generate an adequate living and keep the farm running? Do they have other burdens such as large outstanding debts? If the answer to these questions is not favourable, you may want to delay transferring the farm. Perhaps the transferree needs to improve their financial position before they can get started in the business of farming.

You’re Social Security Position:

Every individual is different regarding their social security contributions and status. Changes in social security rules may affect your plan to exit from the farm business. Contact your local social security office about your contributions and benefits before making any decisions about when to retire or how to sell or transfer the farm.

4. Your Willingness to Let Go:

Transferring your farm to someone else means you no longer will be in control of the farm business. If you cannot let go or stand to see someone else in the decision making role, do not retire until you can accept this change in your role. If the farm has been the major focus of your whole life and you have spent nearly every day building and working on this farm – it can be a challenging transition.

5. Other Family Members:

Including your family members in the discussion regarding the transfer of the family farm helps to address possible future conflict, stress and misunderstandings
If you wish to give a building site to one of your children, parents should transfer the site prior to transfer. Other settlements for example, cash, second house, shares, etc. not affecting the land and property being transferred, can be done at the appropriate time. In relation to education of the other family members if provision is not made previously, and it is an issue at the time of the transfer, this should be discussed and provided for.  Can they avail of third level grant? This will depend on the situation at time of transfer.

6. Your Health:

Transferring your farm business to someone else can afford you time to do the things you have always wanted to do. Retiring early while your health is good may give you more time to travel, pursue hobbies, spend more time with family, etc.

7. Nursing Home Costs

If retired people have to enter a nursing home in old age, the costs are substantial. A new Nursing Home Support Scheme (the Fair Deal Legislation) came into effect on 27th October, 2009. A person’s income and assets are subject to a detailed examination to decide on the level of contribution which they must make towards nursing home costs. For farmers, there is a five-year “look back” rule at assets including the farm which were transferred in the 5-year period before entry to a nursing home and these are included in the calculations.
More details are available here: http://www.hse.ie/eng/services/list/4/olderpeople/nhss/ or from the HSE (Lo Call 1850-24-1850).

Q: What are the main taxation issues to be considered when transferring the family farm?

There are three taxes commonly involved when lands are transferred and we will look at the tax position under those three headings:

1. Capital Acquisitions Tax (Gift Tax)

Transfers of property, including family farms are subject to gift tax and the tax is charged on the current market value of the farm. There is a tax free threshold of €225,000.00 for a son/daughter and all gift/inheritances taken since 1991 are taken into account to calculate this. The thresholds are generally less for other relatives and particularly for people who are not related.
However, there is a tax relief that can be used to transfer agricultural assets called “agricultural relief”. This reduces the value of the land and any qualifying farming assets and a farmhouse to 10% of its actual value where the beneficiary is deemed to be a “farmer”. “Farmer” in this context does not mean somebody who actually farms but is actually a financial test and in this context means a person whose farming assets (including the value of the current gift) exceed 80% of their total assets. Gift tax on the excess of the property that is not within the threshold is taxed at 33% currently (2014).
Click here to see up-to-date CAT Thresholds: http://www.revenue.ie/en/tax/cat/thresholds.html

2. Stamp Duty

Stamp duty is charged at 6% on the transfer of farmland but a reduced rate of 1% currently applies where the transfer is to a family member but this relief is set to be abolished with effect from Dec 31, 2014. Stamp duty is charged on the current market value and accordingly a current auctioneer’s valuation will need to be obtained in this regard.
However, there is a full exemption from stamp duty in the case of a transfer to a young trained farmer. This exemption from stamp duty is to encourage the transfer of farmland to a new generation of farmers with relevant qualifications. The transfer may be by way of gift or sale.
In order for a young trained farmer to benefit from this exemption, there are a number of criteria to be met first:
1. The farmer must be less than 35 years old.
2. The farmer must have one of the necessary agricultural qualifications.
3. The farmer must undertake to spend not less than 50% of his/her normal working time farming the land after the transfer. The land cannot be sold for five years. The exemption granted will be clawed back if the land is disposed of within 5 years from the date of execution of the deed of transfer and is not replaced by other land within one year of disposal.
The exemption is set to continue up until the 31st of December 2015.
Click here for more info re young trained farmers relief from stamp duty: www.revenue.ie/en/tax/stamp-duty/leaflets/sd2b.pdf

3. Capital GainsTax.

When somebody transfers property that is not their family home, capital gains tax is charged on the difference between the value of the land when they acquired it and the sale price. Even if the property is transferred by way of a voluntary transfer where no monies pass, the relevant value is its current market value.
Tax is charged at 33%. There is relief, however, provided to farmers over 55 where the property has been farmed by them for the previous ten years. (There are relieving provisions where the land has been let.) There are certain restrictions when the farmer is over 66 (from 2011 onwards) but in general these are not onerous restrictions.
Click here to see up-to-date CGT:
http://www.revenue.ie/en/tax/cgt/cgt-faqs.html

4. Income Tax

It’s important to check with your accountant to see if there are income tax implications for transfer, or due to the transfer. It’s equally important to tell the accountant well in advance of transfer, your intentions of what’s proposed for efficient tax planning. Cessation rules apply to the person transferring and commencement rules apply to the young farmer taking over.