Tax confusion as farmers hit with unexpected bills from farm partnership setup

Ciaran Moran

Ciaran Moran

The Revenue Commissioners are currently putting together a document to clarify issues in relegation to farm partnerships.

There has been some confusion in relegation to tax liability since the registered farm partnership regime replaced the milk production partnership regime.

It is understood significant unexpected tax bills have hit a number of farmers who recently established a new partnership. It is believed the issues centre around the change in farmer status as a sole trader to a partner in a business.

Revenue is currently preparing a booklet on the taxation issues around registered farm partnerships, including the implications of the cessation rules.

Following the abolition of milk quotas in 2015, a new register for farm partnerships was introduced to supersede the old Milk Production Partnership register.

The new booklet is intended to replace the existing Revenue booklet on Taxation Issues for Milk Production Partnerships. This is due to be published before the end of the year.

There are currently 1,398 Registered Farm Partnerships (RFPs).

In Budget 2015, the Minister for Finance Michael Noonan announced the introduction of a Succession Farm Partnership, subject to EU State Aid approval.

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A Succession Farm Partnership is a succession planning model that encourages older farmers to form partnerships with young trained farmers and to transfer ownership of the farm, within a specified period, to that young trained farmer. This relief is available to any individuals, including families, who meet the qualifying criteria. 

The key terms of a Succession Farm Partnership are:

  • Where a Registered Farm Partnership exists, where one participant is a farmer who owns land and the other participant is a young trained farmer, this partnership may become a Succession Farm Partnership.
  • In general, there can only be two partners: an anchor farmer and a young trained farmer successor.  Where the anchor farmer's land was co-owned, or where the anchor farmer intends to pass the farm jointly to a successor and that successor's spouse or civil partner, then exceptions are made.
  • The anchor farmer must agree to transfer the farm to the successor within 3 to 10 years of entering into the partnership.
  • For the first five years of the partnership, or up until the successor reaches the age of 40, the partners are entitled to a 'succession tax credit' of €5,000 per annum divided between them. This tax credit can only be used against the profits of the farm. The partners can apportion the tax credit between them based on relevant agreements. If the farm is not transferred as agreed at the outset, then this tax credit is clawed back.

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