* transparency and honesty, communication
* respect and honesty between partners.
Who can enter a partnership?
All farmers can enter a partnership regardless of their farming enterprise. Partnerships can be used by:
* Two or more existing farmers can combine their respective enterprises
* A farm family where a partnership is used as a transition for the younger generation
* An existing farmer that has no successor and a young trained farmer who wishes to be involved in a career in farming.
Partnerships can include all people actively involved in the running of the farm for example, sons, daughters, spouses etc.
The financial benefits of entering a farm partnership agreement fall into two categories - tax and Department of Agriculture schemes.
Each partner is taxed on his/her share of the taxable profits/loss from the partnership.
So, if one partner has smaller drawings/share of the profits, he will only be liable for tax on the smaller income.
A statement of income and expenses is prepared showing the total income and expenses of the partnership.
It is the net partnership income that is divided between each partner. This allows for a greater amount of income to be paid at the lower rate of tax.
The partners then file their own self-assessment tax returns reporting their share of the net partnership income. Income averaging can continue by any partner who chooses this option.
Young trained farmers can continue to benefit from access to stock relief equivalent to their share of the increased stock value for four years. Parents can also access enhanced stock relief - once the partnership has been registered.
Succession farm partnerships
One of the most significant benefits is that registered farm partnerships that fulfil certain criteria can avail of an annual tax credit of €5,000 for up to five years.
In order to avail of this incentive, one of the partners must be farming as a sole trader on three hectares for at least two years.
Also, one partner must be a young trained farmer under 40. A certified farm business plan must be completed for the partnership.
There must also be an agreement to transfer the farm from one partner to the other within three to 10 years of the registration of the partnership.
A minimum of 80pc of the farm assets must be transferred within this time frame.
There are a number of benefits to partners which have come about under the most recent CAP and I will examine these in a separate article.
Forming a farm partnership
The On Farm Agreement deals with the day to day running of the farm; the responsibilities of each partner are agreed as are the financial benefits.
It is also essential that the partnership has a nominated accountant and solicitor and holds bank accounts for the partnership.
It also includes an essential term in relation to resolving disputes that will arise between the partners.
In every good working relationship, there will inevitably be differences and having an agreed strategy to deal with these could keep the business together. This is particularly important in the context of a family partnership where the younger partner may feel that the older partner or the partner who 'brought the most to the partnership' will always have the final say.
One of the advantages of this agreement is that the decision making process can be shared.
Registered Farm Partnership Agreement
This deals with other essential elements like the breakdown of profits from the partnership on an annual basis, the liabilities of each partner, the value of stock etc that each partner brings in (or doesn't, in some cases). In this agreement, values are agreed for cash contributions, stock, machinery, buildings, lands etc which are used by the partnership. You can get a valuer to value these or agree a value between partners.
It is essential to consider the Revenue book value of animals and plant in this case as it may have a future impact on Capital Gains Tax.
This agreement also deals with the length of time the partnership will exist for as well as what will happen in the event of the death of a partner or where one or both partners wish to end the partnership.
The partnership must be notified to the Department of Agriculture for a Certificate of Registration before it becomes effective.
* This is the first of a two-part series on Farm Partnerships; the second article will appear in our Tuesday, January 31 edition.
Theresa Murphy is a barrister based in Ardrahan, Co Galway. This article is intended as a general guide only and professional advice should always be sought for individual circumstances. No liability is accepted for errors.