The traditional husband-and-wife family farm structure is still prevalent in a time of farm labour shortages and increased childcare costs.
In a lot of these cases the farm profits are recognised and returned in the sole name of the husband, even when the business is clearly operated jointly by both spouses.
This type of pooled profit filing can arise for various reasons such as a husband already filing farm profits pre-marriage or the wife originally working off-farm in employment, before returning to assist full-time on the farm.
These spouses are clearly active in the day-to-day running of the business and are often the ones who communicate directly with advisers such as accountants and solicitors.
The eventual recognition of a husband-and-wife partnership by couples usually becomes a topic of discussion when both spouses are nearing retirement.
But married couples should look at the possibility of maximising future reliefs available by registering their partnership with the Revenue Commissioners and the Department of Social Protection early on in the business life cycle.
There are many benefits of registering the partnership where neither spouse has an off-farm income.
Where a farm's annual taxable profits are in excess of €44,300, it is worthwhile considering the use of a partnership.
For example, a husband-and-wife partnership can earn an additional €26,300 farm profits at the lower rate of tax. This provides a minimum tax saving of €5,260 per annum.
There is also potential for additional tax credits (Earned Income credit) where one spouse is not already claiming the Home Carers credit.
The joint ownership of farmland will allow both husband and wife to claim the land leasing exemptions separately where land is eventually let out on a long-term lease at retirement.
Where farm profits are split in the tax return, both spouses can make contributions to their own private pensions and thus avail of the income tax reliefs available.
This can be of benefit in retirement years, especially where it is already envisaged that the income of one spouse is going to be in excess of the lower-rate tax band.
Where the farm profits are filed in the husband's sole name for example, no PRSI is paid for the spouse in respect of these profits.
The benefit of the partnership profit split is that the PRSI is paid annually for the spouse at no extra cost. This PRSI recognition will provide the spouse with a better opportunity of obtaining her own state pension in the future.
Spouses who are dependent on their husband's PRSI contributions are restricted in the value of assets they can own and the income they can earn while claiming the Dependant Adult rate pension.
In addition, the taxation of this Dependant Adult rate pension is assessed on the husband. As a result it can give rise to taxation for the husband at the higher rate of tax where the husband's combined annual income is in excess of the lower-rate tax band.
However, if the spouse received the pension in their own right it may have a lower rate of tax applied. It also provides for possible additional tax credits being available in the pension years, as the spouse may be entitled to the PAYE tax credit on their own pension.
Currently no additional PAYE credit is available on the Dependant Adult rate pension payment paid for a spouse.
The transfer of assets between husband and wife are not liable to Stamp Duty. This exemption facilitates inter-spousal transfers of assets required to obtain tax reliefs including the Land Leasing Income tax Exemption and Capital Gains Tax Retirement Relief and Revised Entrepreneurial Relief.
Capital Gains Tax
Where farmland is owned and farmed jointly by a husband and wife, there may be an opportunity for each spouse to avail of the Retirement Relief tax-free threshold (an effective doubling of the relief available) on disposals of assets to non-family members.
This would also be the case for Revised Entrepreneurial Relief with the potential to have the €1 million lifetime gain taxable at 10pc available to each spouse where all conditions are met.
There is also an exemption from Capital Gains Tax on the transfer of assets between spouses to facilitate these CGT reliefs.
However, it is critical to be aware of the pitfalls of transferring property eligible for Retirement Relief between spouses who have already reached the age of 55. Transfers between spouses over 55 can result in the Retirement Relief lifetime tax-free threshold being reduced by the value of the assets transferred.
Capital Acquisitions Tax
There is no gift/inheritance tax on the transfer of assets between spouses.
This exemption on inter-spousal transfers further facilitates the tax planning required for future leasing, transfers or sales.
Recognition of a husband-and-wife partnership has an array of financial and tax benefits.
As with any tax and business planning it is important to consider the circumstances carefully in each case before any steps are taken to officially recognise such a partnership.
This includes the timing of transfers of assets depending on the ages of the individuals, the family dynamic and the wider succession plan if children are to be involved in the future.
Brian Harty, of Harty Tax Consulting, is a chartered tax adviser based in Cloyne, Co Cork. email: email@example.com