Farm Ireland

Tuesday 30 May 2017

Boom time for farm partnerships

Farm partnerships are now more attractive.
Farm partnerships are now more attractive.

Martin O'Sullivan

Budget 2016 has further enhanced the attractiveness of farm partnerships.

From 2016, farmers who enter into a registered partnership with their intended successor will attract a new €5,000 tax credit that will be shared between the partners. This measure along with the new Earned Income Tax Credit could save a typical father/son partnership up to €6,100 in tax in any one year.

These two new measures, along with the retention of the existing Stock Relief provisions will mean that many newly formed partnerships will pay little or no income tax.

In addition, the reduced rates and extended entry threshold to USC may also provide a significant saving for many farmers. Persons earning less than €13,000 will now be exempt from USC and for those who will be liable, the rates are reduced by between 0.5pc and 1.5pc.

The new partnership tax credit will be available for a five year period and will be conditional on the farm being transferred within 10 years.

While most transfers will not attract Capital Acquisitions Tax, the increased threshold of €280,000 from parent to child as announced in the Budget will further lessen the possibility of CAT for larger farm transfers.

Apart from the generous tax concessions, farm partnerships also attract a doubling of the €80,000 investment limit under the TAMS schemes which can be worth up to €48,000 to a young trained farmer.

Taking all of the available incentives into account, farm partnerships are now a really attractive option for farm families. The case study (see panel) outlines a scenario where the maximum available benefits can be exploited by forming a new partnership in 2016.

Where the family circumstances are appropriate, the option of a partnership should be seriously looked at while the full suite of incentives are available.

Apart from the obvious grant and tax benefits, a major attraction of partnerships is that they are not an irrevocable commitment in the way that a farm transfer is.

In other words, if things go badly wrong the partnership can be revoked, albeit with possible tax clawbacks under the new partnership tax credit provisions.

This gives the partners a period during which the parent can ease back and the son or daughter can assume a greater level of control.

Intending partners should start the process now by consulting your local Teagasc or ACA advisor and set a target start-up date.

The January 1, 2016 deadline should still be well manageable.

Case study

Farmer Joe, who is married to Mary, a teacher, has decided to go into a 50:50 partnership with his son Pat who has recently returned home to the farm after completing his farm training and spending a year in New Zealand. Pat has been largely financially dependent on Joe up until now. They intend making an application under the TAMS scheme for new dairy facilities costing €200,000 to accommodate an additional 40 cows that will represent a stock value increase of €40,000. Farmer Joe’s tax status is that of a sole trader earning an annual profit of €68,000 and paying around €22,000 tax per annum. It is assumed that the taxable profit will not change as a result of the increased cow numbers due to the availability of capital allowances on the new facilities.

The overall benefit in years one to five will be €15,940 per year in regard to tax savings along with increased grant assistance in year one of €48,000 providing a total benefit of €63,940.

Indo Farming