From tax relief to wills, everything you need to know about transferring a farm holding

Speaking to the Farming Independent recently at one of Teagasc’s ‘Transferring the Family Farm’ events, Klara answers some of the common questions transferors and transferees might want to know.

​What advice would you give to someone who wants to transfer the family farm?

Communication is the biggest thing — coming up with a plan and then going to your solicitor or accountant to implement it.

I wouldn’t always lead with tax — the decision to transfer to someone should never be made just based on tax relief.

If your oldest daughter wants the farm and it’s not as tax advantageous as it would be to transfer it to one of her younger siblings, it doesn’t matter — you’re far better off transferring the farm to someone who wants it and will look after it, rather than just transferring it to someone for the sake of avoiding tax.

You should go to your accountant first, who will steer you tax-wise, and your solicitor, who will steer you legally. And in between all that, you should be liaising with your farm advisor — be it a Teagasc advisor or elsewhere — because there are deadlines for certain schemes that need to be considered.

​Does it matter what time of year I transfer the farm?

The time of year you do a transfer is very important. Your BISS payment is done in May, so if you’re in the middle of April and it doesn’t get across the line until June, your BISS payment will go in under no reference number and it gets kind of complicated.

Whereas if you’ve got it completed by January, everything is much smoother and more streamlined.

If you’re entering a farm partnership, the best time to do it is now. The Department of Agriculture only open the application portal for the first few months of the year, but February is the main month for having it done.

Auctioneers are irrelevant in farm transfers; they’re only needed once and that’s to value the farm for the Revenue.

​What security can the person transferring the family farm keep for themselves?

There are a few ways this can be done. Again, you need to sit down and talk it through.

One option is for the person taking over the farm to agree to provide the transferor with a small income, and perhaps between that and their pension, they’re happy.

Provisions such as maintenance of a house can be made, so the person taking over the farm might agree to maintain the house and fix any issues which arise.

Where there’s a family farmhouse involved, a clause can be incorporated into a legally binding agreement that provides that the transferor has a right of residency there until the date of their death, no matter what happens, and the upkeep of the house is the responsibility of the transferee.

If there is another rental property, for example, an agreement might be made that the income from that goes to the transferor until the date of their death.

Agreements can be tailored to suit each family. There’s no uniform template — it’s very much based on individual scenarios. You can build clauses into your agreement to protect yourself, depending on what your needs may be.

​I want to transfer the farm to my son/daughter but I want to keep an acre for myself; will they be hit with a big tax bill if I transfer it at a later date?

No, it’s still agricultural land. If you want to retain land, perhaps to give as a site to another son or daughter, never just keep an acre, because Revenue could recognise an acre as a site and they will deem that commercial land. So, I’d always recommend that you hold on to two or three acres. You can still allow the person taking over the farm to graze it if you create a grazing agreement, but it will have to be fenced off and accessible through a gate.

Sibling-to-sibling transfer is applicable for full tax. There is very little tax relief available for it.

​I have three children and I want to transfer the family farm to one of them. How do I provide for the other two?

Farmers are often seen as wealthy, owning a lot of valuable assets; unfortunately, due to the nature of the enterprise, many are “asset rich, but cash poor”. When there are several children to be looked after, it is frequently expected that the farm should be divided evenly among the children in terms of money. This usually isn’t a viable option.

What’s fair isn’t always equal. For example, if you have a 100ac farm and it’s all in one block, more than likely it won’t be possible or reasonable to split it, and sometimes, splitting it may make the farm unviable.

Usually, in that instance, the parent will provide for their other children in a different way. They might support them with money to put towards building their own home or they might pay for their education.

Sometimes the child/children who receive an education may be better off financially in the long-term than the child who receives the farm.

If the farmer wants each child to receive a truly equal share, assets can be sold and proceeds divided among the children. Commonly this is a last resort for farmers in Ireland. We have all heard of that farm that had to be sold because they couldn’t agree or bad planning lead to a financial crisis. This is the situation we all want to avoid, so communication is vital here again.

Every family has a different set of circumstances, so this is why sitting down early with everyone is vital.If only one spouse is actively farming, it is vitally important that both spouses agree on the farm transfer process in order to prevent difficulties further down the line.

​I was left with the family farm in my mother’s will, but I have no interest in farming and my brother does. Can I transfer the farm to him?

What often happens in that scenario is that the family farm is sold and the money is split. But again, transfers between siblings are taxed at 33pc so it’s not an attractive option for most.

Cases like this highlight the importance of the parents sitting down with the children and having an open and honest conversation about who is interested in what and what can be done.

A good accountant is vital in a case like this. They will be your first port of call and can advise on the best options.

​I’m planning on transferring the family farm to one of my children. Do I still need to make a will?

When meeting a farmer, the first thing I always ask is: “Have you made a will?” The importance of making a will cannot be underestimated. The will is the backup to any agreement or transfer made while alive. It’s always better to have a plan in place. By not having one, difficulty can arise if the transfer is unplanned due to illness or death of the farm owner.

Many people put off making a will because they don’t want to think about their own death, but it’s really important.

When a will is complete, it will give the farmer a sense of relief that no matter what happens, their wishes for the farm have been noted and will be implemented. It is also important to review your will, especially if circumstances change.

If there is no will (intestate) the State will decide what happens to your estate using the Succession Act of 1965. The intestacy rule outlines both the number of shares that each person would be entitled to receive, as well as their priority order.

The preferences verbally expressed by the deceased, personal feelings or past disagreements are not taken into consideration. For instance, if the deceased leaves behind a spouse and children, the spouse will receive two-thirds of the estate, while the children will receive one-third in equal shares.

​What tax is applied to the transfer of a family farm?

There are three taxes involved in transferring a family farm. Capital gains tax (CGT) is applied to the transferor and the person receiving the farm has to think about capital acquisitions tax and stamp duty.

Capital gains tax is easy to get out of as long as you have been using the farm for the last 10 years, and usually that’s the way it has been.

All capital assets including land, buildings and payment entitlements are taxable and there are reliefs available such as annual exemption, indexation relief and retirement relief.

Capital acquisitions tax (CAT) can be relieved through Agricultural Relief which, if applicable, will reduce the value of the assets for calculation of tax to 10pc of its value. To qualify, the person receiving the farm must pass the ‘farmer test’. To pass this, you must have at least 80pc of your total assets invested in agricultural assets, and, they must also be classified as an ‘active farmer’.

Stamp duty is where an official revenue stamp is applied to the deed which is the official transfer document, for an asset. It is applied to assets that require a deed to transfer and includes land, farm buildings, commercial property or houses. Livestock, machinery and payment entitlements are not subject to stamp duty.

The stamp duty is levied on the person receiving the farm or asset on the stamping of the deed or within 30 days of the transfer. There are reliefs available for stamp duty, including one which reduces the rate applied to a transfer between blood relatives, it’s called consanguinity relief.

​I’m 30 years old and my parents are transferring the farm to me. What tax relief can I avail of?

You can get full relief from stamp duty if you avail of ‘young trained farmer relief’. This is applicable if you’re under 35 and have the correct qualifications; the minimum you need is a Level 6 Specific Purpose Certificate in Farming (Green Cert).

There are conditions that apply on the length the young farmer has to hold the asset for, and they have to remain classified as a farmer for a period of time after availing of the tax relief. As long as the transaction is complete before your 35th birthday, you then have four years to complete the Green Cert, but it has to be in your hand at the end of that four-year period.

If you haven’t got your qualifications until after the transfer, you will have to pay the full 7.5pc stamp duty and claim it back when you get your qualification (providing it’s done within that four-year window).

​I don’t have anyone to take over the farm from me — what can I do with it?

There are a few options. One is a collaborative farming agreement: this is where you enter into a partnership with a young farmer who wants to farm, but has no farm coming to them. You can form an agreement whereby the young farmer can eventually buy the land.

Then you have the land mobility service — it joins up farmers who have no successors with people who want to farm, but have no land. You can come up with the agreement yourself and add clauses that suit you both.

Sometimes you have to be selfish. If you definitely don’t have any possibility of a successor, you could look at the option of selling part, or all, of the farm and living off the income from that sale.

​I’ve been farming all my life but none of my children are interested in taking over the farm. What are my options?

Often in this scenario, the best thing to do is to make a provision in your will that provides for the farm being sold upon your death and the money split equally between your children. If none of your children are interested in farming, there’s no point leaving the whole farm to one of them.