Farm Ireland

Saturday 17 March 2018

Farming Finance: Smooth transfers

Some common-sense planning will protect both parties in farm transfer arrangements, writes Theresa Murphy

Q: I am a farmer, getting close to retirement. My wife and I have two children and would like to pass on part of our farm to each of our children. We would like to see them build the farming business their own way in our lifetime, so we intend to transfer the farm in the near future. What do we need to consider before making the transfer?

The planning process for the transferring of the family farm can be broken down into two main elements. First, is the financial element. You must ensure that both you and your wife have financial security for your retirement and old age.

You should also consider the tax implications, for both you and your children, of a transfer. This may take considerable planning and you should seek professional advice to ensure you are benefiting from the reliefs that exist.

The second element is the legal dimension to handing over the farm. Before approaching your solicitor, it's worth considering the following points.

The farmhouse

For many Irish farming families, the farm house is at the heart of the holding, both physically and emotionally and many will not want to see the farm house severed from the farm.

In the case of splitting the farm between two children, it is essential that the farm house and its 'curtilage' (the garden and immediate surrounds) is provided for legally. It may be that the farm house will be transferred to one child but it is important to protect the interests of both people living there into the future.

By creating a 'life interest' in the farm house you can ensure that you and your wife will be able to enjoy the house as your home until you both die. This will also protect your rights if either of your children mortgaged the farm house during your lifetime.

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Mortgages or charges

Many farms or farm houses will have mortgages, loans or charges in place. While this should not be a bar to transferring on the lands, the financial institution (charge holder) will need to be notified and will likely need to be joined to the deed of transfer.

Splitting the holding

In the case of splitting the land holding and entitlements it is important to bear in mind that the entitlements are not attached to the land and do not automatically transfer.

It may well be that the entitlements could be transferred to one of your children while the land is transferred, in the majority to another child.

While this may leave the child inheriting the land with no entitlements, if s/he is eligible to do so, they could apply to the national reserve for entitlements on the land.

In the case of the child inheriting the entitlements, the entitlements have to be activated, i.e. the person who wishes to draw down payment must declare one eligible hectare for each entitlement that he holds.

Nursing home care

While this may be a faraway prospect for many choosing to retire is a factor for consideration for those transferring on the family farm. It is worth examining the rules of the 'Fair Deal Scheme' in this instance.

Under this scheme, if farms are transferred within five years of the (previous) owner requiring nursing home care, the State can seek a percentage of the farm's value to part fund the nursing home care.

This could have very serious implications for the new owner of the farm.

Legal requirements

The same solicitor or two solicitors within the same firm (as was often the case in the past) are prohibited from acting for both the seller and buyer or the transferor and transferee.

The rules were put in place to protect those who are vulnerable from possible undue influence by relatives.

This rule does create additional expense as both parents and children in this case will need to retain solicitors.

Once you have ensured that both you and your spouse will be provided for into old age and you have sought advice in relation to Stamp duty and the exemptions which are available as well as the relevant reliefs from capital acquisitions tax, you should consult your legal advisors. Many may be surprised that the best time to transfer the farm could be during your lifetime.

Theresa Murphy is a barrister based in Ardrahan, Co Galway

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