Advice: How to safeguard the roof over your head

Parents can retain a legal right of residence in the family home after transferring farm property ownership to the next generation

Future problems: Retaining ownership of the farm dwelling can have tax consequences
Future problems: Retaining ownership of the farm dwelling can have tax consequences

Martin O'Sullivan

Over the years, I have dealt with the various issues associated with transferring the family farm. Arising from these articles, a question that keeps popping up is whether or not to transfer the farm dwelling, particularly where the dwelling's location is such that it would never be suitable for anybody other than the successor to eventually take ownership.

More often than not, the uncertainty about the dwelling stems from the horror stories around fears of losing the 'roof over your head'.

Thankfully, the horror stories are more fiction than reality and, in my 40 years advising farmers, I have never seen someone lose their home in these circumstances.

That's not to say that such events could not happen and it is understandable why people are slow to part with outright ownership of their family homes.

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One may have absolute faith that their son or daughter would never put their parents out on the road, but doubts can exist about a prospective (or even existing) son/daughter-in-law.

In this article, I will examine the various pros and cons of transferring the farm dwelling and the protections that can be put in place should you choose to transfer.

TYPICAL FAMILY FARM SCENARIO

Many, if not most, family farms will have the farm dwelling situated in or adjacent to the farm yard.

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Typically, at the time of transferring the land, the successor will already have or will intend to build their own house on the farm.

The existing farm dwelling will house the parents and possibly one or more family members who still reside at home. By virtue of the location of the existing farm dwelling, it would not be feasible or practical that the eventual ownership of the house should rest with anybody other than the successor as the house would not be saleable as an independent entity.

This is the typical scenario where the question of whether or not to transfer the farm dwelling presents a bit of a conundrum.

In many cases, where the parents' dwelling is not located adjacent to the farm yard, the issue does not arise as it is likely that one or more other family members will inherit the house when the parents pass on.

OUTRIGHT OWNERSHIP RETENTION

Retaining outright ownership of your farm dwelling will provide you with the comfort of knowing that the roof over your head is secure and any misfortune, be it financial or matrimonial, that might befall your successor will not jeopardise that.

While this all sounds sensible and reassuring, it is the case that outright ownership may have negative consequences down the line.

There are alternative ways of providing legal protection to your occupancy without actually retaining outright ownership. Indeed, such alternative protections can also extend to other family members if needs be.

NEGATIVE CONSEQUENCES

Retaining ownership of the farm dwelling can present two possible significant consequences.

Our old friend taxation will be first in the queue.

Where the house is separated from the rest of the holding, it no longer retains its status as a farm asset and does not subsequently qualify for agricultural relief unless and after it has been re-joined with the land. In short, and subject to certain other conditions, assets that qualify for agricultural relief are valued at only one-tenth of their market value for transfer purposes.

In the vast majority of cases, this will ensure that the beneficiary will not pay any gift or inheritance tax. However, if that same successor eventually inherits the farm dwelling when the parents pass on, it will be valued at 100pc of its market value, which could leave him/her with a tax bill.

A further consequence of retaining ownership of the farm dwelling is that its value will come into the reckoning when and if one is availing of the Fair Deal Scheme for the first three years of care.

Property as a source of means is assessed at 7.5pc of its value each year, so depending on the value of the house, this could amount to a significant sum over the three-year period.

OPTIONS

As an alternative to outright ownership, you could retain a right of residence, which is a right to live in a property.

This means that the individual has the right to live in the house for as long as they wish or until they pass away.

This should not be confused with transferring the property, but retaining a 'life interest'.

In this instance, you effectively retain ownership of the property for your lifetime and the person who ultimately inherits the property may face tax issues on your death.

The benefit of opting to retain a right of residence is that you have actually transferred the house with the land, so it remains farm property and qualifies for Agricultural Relief. It will also qualify for the Stamp Duty exemption if the transferee meets the conditions for qualifying for that relief.

A further benefit is that you no longer own the house and it will not be included in the means test to determine eligibility for the Fair Deal Scheme.

Your right of residence cannot be specified as an exclusive right to the exclusion of anybody else as this will result in Revenue regarding you as having a life interest.

While this point may be of no consequence in most family farm situations, it may be important from a tax perspective.

SUMMARY

In many cases, but particularly where the farm dwelling is an integral part of the farm yard and could never realistically be sold as an independent entity, it makes little sense but to transfer ownership with the land while retaining a right or residence. This will ensue that you secure the 'roof over your head' while also avoiding possible future problems for yourself and/or your successor.

Indo Farming


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