The transfer of farms to younger generations presents a big decision to a farmer and various financial, personal and practical issues arise.
There are three taxes commonly involved when lands are transferred and we will look at the tax position under those three headings:
Stamp Duty: Stamp duty is charged at 2% on the transfer of farmland but a reduced rate of 1% still applies where the transfer is to a family member. There is serious concern that this 50% relief shall be abolished. Stamp duty is charged on the current market value and an 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 is someone who is under 35 years of age with an appropriate agricultural qualification who undertakes to spend not less than 50% of their working time farming the lands.
Capital Acquisitions Tax (Gift Tax): Transfers 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 gifts since 1991 are taken into account to calculate this. This threshold also applies to nieces/nephews who have been working on the farm.
However, there is a major relief called “agricultural relief”. This reduces the value of the land (and farmhouses) to 10% of its true value where the gift is to an “active farmer”.
Capital Gains Tax: 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. If there is no sale, 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.
It is open to a farmer to transfer the land but to continue to take part in the business of the farm in a partnership. This is very much a personal decision based on the lifestyle choice of the farmer and his income requirements.
The transferring farmer must ensure that he has sufficient income for the future particularly if he is elderly when increased medical care expenses might arise. State and other pensions must be taken into account. What is important is that the transferring farmer remains financially independent so that in the event of any dispute with the young farmer, he is not left destitute.
The living arrangements regarding the farmhouse will be of great importance. As the farm buildings will very often be close to the farmhouse, the decision must be made whether the farmhouse itself will be transferred to the young farmer. Various arrangements can be entered into to ensure that the transferring farmer continues to have independence in the future.
The transfer of the farm entitlements (single farm payment, milk quota etc) must be considered in the context of the new financial arrangements on the farm.
Transfers of family farms will very often be of great interest to the remainder of the family and the optimum solution is to ensure the transfer does not give rise to family disputes either at present or in the future.
Transferring the family farm is a very big step and the best way of going about things is for the farmer to speak with his solicitor long in advance of the proposed transfer to tease out the various issues that are involved so that a workable solution is reached for all concerned. Once the transferring farmer is financially secure and happy with the new arrangements, the transfer of the farm can lead to a great relief that the future of the farm has been secured.
The farmer may be nervous that the young farmer will not continue to stay on the farm and rather than transfer the farm to him entirely, it is open to him to consider a leasing arrangement to see how he or she gets on. There are significant tax advantages in entering into a Lease for 5 to 15 years and this is an option that should be given serious consideration before you consider transferring the farm.
Sean Mahon, Mahon Sweeney Solicitors