Succession Farm Partnerships
One in three farmers in Ireland are over the normal retirement age and only one in 20 under the age of 35. The Irish Government, in conjunction with the Department of Agriculture, Food and Marine (DAFM), launched the succession farm partnership initiative in 2017. This aimed to try and change the apparent reluctance to legally transfer lands to the next generation. It only applies to farm partnerships registered with the DAFM.
Objectives of the initiative
The primary objective is to encourage the transfer of farm assets to the next generation, while also providing some security for the transferors by allowing them retain ownership of up to 20% of their farm assets.
The initiative allows young farmers to become involved in the farm operations with their parents and integrate into the management of the farm business at an earlier stage. In order for farms to remain competitive, the partnership also provides an opportunity to increase scale, maintain security of labour and improve quality of life through better work–life balance, while also enhancing farm safety. It will also assist in reducing rural isolation and improve the social demographics of Irish farms.
Benefits of succession farm partnerships
Defined succession and inheritance plan
Both generations are aware of the succession plan. It allows the inheritor to integrate into the farm business with their parents.
The partnership gives them responsibility and decision making powers and is an important step in the development of the young person as a farmer. It provides an ideal transition of the farm business from parent to child.
All parties remain involved in the day-to-day running of the enterprise. Responsibilities are shared as agreed in the partnership agreement. As the successor now has a share in the profits, they are incentivised to really get involved, take responsibility and develop the farm business.
Succession Farm Partnership Tax Credit
An annual tax credit of €5,000 is available to succession farm partnerships, for a maximum of five years from the date of receipt of a valid application to the DAFM registration office, up until the year the successor is 40 years old. The partnership will not be eligible for this tax credit in the tax assessment year that the successor turns 40. The tax credit is split between the partners in the same ratio as the profit sharing ratio of the partnership. For example, Tom (father) and John (son) enter a succession farm partnership. Their profit sharing ratio in the partnership agreement is a 60:40 split. Therefore, Tom will receive a tax credit of €3,000 and John €2,000. This credit can also be offset against off-farm income.
Financial, social and CAP scheme benefits as per registered farm partnerships
These benefits include work–life balance, improved age structure, income tax benefits, stock relief, Common Agricultural Policy (CAP) scheme benefits such as Young Farmers Scheme, National Reserve Scheme, Targeted Agricultural Modernisation Scheme (TAMS) II, Collaborative Farming Grant Scheme, etc. For further information on these benefits, please see fact sheet on Registered Farm Partnerships here
Establishing a succession farm partnership
There are a number of key criteria that have to be met.
You must already be in a registered farm partnership (RFP)
At least one member of the farm partnership must have been engaged in farming on farmland owned or leased, consisting of at least three hectares of useable farmland, for at least the previous two years. This person is defined as the “farmer”. The other member of the succession farm partnership must not have reached the age of 40 and they must have an appropriate agricultural qualification as specified in the regulations. They must hold an entitlement to at least 20% of the profits of the partnership. This person is defined as the “successor”.
A farm business plan must be completed and certified
Complete and submit the Teagasc My Farm, My Plan booklet to your local Teagasc office for certification. This booklet is available from Teagasc offices and can be downloaded here. There are two parts in this farm planning process. The first part is the farm plan, where the process behind what you are intending to do is analysed. Secondly, the financial plan analyses your proposed farm plan to establish that it is viable.
Complete a succession agreement
The farmer and the successor(s) must enter a legally binding succession agreement to sell or transfer at least 80% of the farm assets to the successor(s). This transfer must take place between the end of year three and before the end of year 10 from the date that the application is made to register the succession partnership.
The succession agreement will:
- identify the farmer and the successor(s);
- identify the transfer date;
- list the farm assets to be transferred – this must include details of land, farm buildings, Basic Payment Scheme (BPS) entitlements, livestock and machinery; and,
- include details of burdens, right of residence, input of banks where securities, guarantees, charges exist,
Submit birth certificate of the successor
This verifies that the successor is less than 40 years of age on the date of application
Facts and figures
- Successor must be under 40 years of age to enter a succession farm partnership;
- agreement to transfer a minimum of 80% of farm assets;
- farm assets are transferred after the end of year three and before the end of year 10 of the agreement;
- there is a €5,000 annual tax credit available to the succession farm partnership members;
- tax credit is for a maximum of five years;
- tax credit is not available in the tax assessment year that the successor turns 40 years of age; and,
- €25,000 is the maximum tax credit that the partnership can avail
It is essential to get the assistance of an accountant/tax consultant for financial and taxation advice and a solicitor for legal advice. In order to avail of the tax credit and remain eligible for the Young Trained Farmer stamp duty relief, the successor must not have reached their 32nd birthday on the date of registration of the succession farm partnership. As land transfer cannot take place for three years, the successor could be over 35 years of age at the date of transfer, ruling them out of the Young Trained Farmer stamp duty relief. As the tax credit is for a maximum of five years, careful planning needs to take place to maximise tax credits, while also availing of the Young Trained Farmer stamp duty relief. The farm partnership must have at least two people and it doesn’t apply to limited companies.
Updating/making a will
It is vital that any previous will made is updated or where no previous will exists, that a will is put in place in line with the succession agreement, to ensure that the documents are consistent with each other.
A claw back of tax credits claimed will apply where the farm assets do not transfer as specified in the succession agreement (a claw back of up to €25,000 will apply where the full tax credit has been claimed).
As with any major decision, succession farm partnerships should not be entered into without the independent legal advice of your solicitor, advice on taxation from your accountant/tax advisor and related advice from your agricultural advisor.