Farm Ireland

Wednesday 24 April 2019

Benefits of farm partnerships will outweigh most of the risks


The financial benefits of forming a farm partnership can be divided into tax benefits and EU agriculture scheme benefits
The financial benefits of forming a farm partnership can be divided into tax benefits and EU agriculture scheme benefits

Theresa Murphy

Q I have just finished my course in agricultural college and I feel that I am ready to take over our family farm, which my parents have run since my father inherited it. My father still does some farming and is not ready to retire. I would like to work in partnership with him, if possible, but I think that we need clear boundaries to make it work.

A. Since my last article on the formation of farm partnerships, a number of readers have raised queries with me in relation to farm partnerships and EU agricultural schemes.

Budget 2016 introduced a tax incentive of a €5,000 annual tax credit for those partnerships that transfer at least 80pc of the farm assets to a young trained farmer within three to 10 years of the registration of the partnership.

The financial benefits of forming a farm partnership can be divided into tax benefits and EU agriculture scheme benefits. Having examined some of the tax benefits in my previous article, I will now look at some of the scheme benefits.

The Young Farmer Scheme

Where a partnership is formed and one of the partners qualifies as a young trained farmer, they may avail of this scheme. To do this, they must be added to the existing herd number using an ER1.1 form. The young farmer must be named on the partnership bank account and sign a legal declaration that they have effective and long-term control, either solely or jointly. Payment of the Young Farmer top-up may be obtained on up to a maximum of 50 activated entitlements declared by the partnership in the year of application.

Young farmer national reserve

The Young Farmer National Reserve Scheme was not available in 2016 due to insufficient funding. It may, though, be available in future years based on funds created from the trading of entitlements.

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Targeted agricultural modernisation scheme (Tams II)

Partnerships that are registered may be eligible for a double investment ceiling under TAMS II. This means that the €80,000 investment ceiling may be doubled to €160,000. The rate of grant is as follows: 40pc on an investment of up to €160,000 where the partnership does not have a qualifying young trained farmer; and 60pc on the first €80,000 ceiling with 40pc on the second €80,000 ceiling where the partnership has one partner who qualifies as a young trained farmer.

Collaborative farming establishment grant

This grant is paid to new partnerships who register successfully. Receipts and invoices that are specifically for the set-up of the partnership can be included. The rate of grant is 50pc on a maximum spend of €5,000. Therefore, the maximum grant attainable is €2,500. This should cover the cost of setting up the partnership.

Multiple payments

Where farmers have farmed in their own right prior to forming a partnership, they are eligible to continue to receive payments due to them under the Areas of Natural Constraint Scheme (ANC), GLAS, AEOS and the Organic Scheme.

Areas of natural constraint scheme (ANC)

Where two or more farmers who qualify for ANC payments in their own right form a registered farm partnership, they can continue to receive their ANC payments.

Ending a partnership

Like any other business arrangement, there must be a way out in case it doesn't work out as the partners envisaged.

The Partnership Agreement should provide for all of the difficulties that could be envisaged for the future and provide a clear conflict-resolution process for the smooth running of the partnership.

It should also ensure that the partnership can be dissolved with relative ease. I cannot emphasise enough just how important it is that the initial agreement be given due attention by both prospective partners and your chosen professional advisers.

Most partnerships will take on some level of borrowing. Before a partnership takes on capital investment (such as buildings, infrastructure and so on), the feasibility, design and funding of the project should be thoroughly thought out and agreed between the partners.

Be sure to have a written dissolution agreement in place in respect of each new capital investment. This will help to provide clarity to each of the partners about the risks of every individual investment and the potential outcomes.

Sometimes, in order to achieve success in business, a certain level of thinking outside the box is required. It may be that the prospect of a partnership is entirely new to many farming families - but could now be an option for them that's well worth considering.

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.

Theresa Murphy is a barrister based in Ardrahan, Co Galway

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