Farm Ireland

Friday 20 April 2018

Making sure everyone gets their just entitlements

Taxation is one of the biggest considerations for many farmers.
Taxation is one of the biggest considerations for many farmers.

Theresa Murphy

Q I am a farmer in my late sixties and have three children. We have a reasonably large farm and my wife and I are planning on making wills in case either one of us dies suddenly or becomes seriously ill. As we had a high stocking rate in the relevant years we have high value entitlements. How can we leave the land and entitlements in a way that looks after all of our children without complicating the management of the farm after we are gone?

Answer:  After you have had a proper discussion with those family members affected by your plans for your estate, you should put together a basic plan and seek legal and financial advice about making a will.

Taxation is one of the biggest considerations for many farmers in planning for the transfer of a farm in a will. Inheritance tax stands at 33pc so it is essential to have a plan in place for minimising tax on the inheritance.

Look to agricultural relief requirements and business interest relief to maximise the tax relief. You will need to have identified an heir/s for the farm land before you get advice on the tax implications, including the tax free threshold that will apply.

If you plan to split the farm lands among more than one heir, you should consider that different rules apply to lands used as sites by heirs. Capital Gains Tax could apply in certain circumstances as well as inheritance tax.

In the case of splitting the land holding and entitlements, remember that the entitlements are not attached to the land and do not automatically transfer with land. 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, you should bear in mind that the entitlements have to be activated, ie the person who wishes to draw down payment, must declare one eligible hectare for each entitlement that he holds.

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This often means that unless the person who inherits the entitlements can rent/buy land upon which to claim the entitlements, they may be lost as a result of the 'two-year usage' rule.

Any entitlement that remains unused for two consecutive years will revert to the National Reserve.

As previously stated, the entitlements are not attached to the land.

Therefore, unless it is specified in the will the entitlements will fall into the residue of the estate. The residue covers everything owned by the deceased which is not willed specifically to a named person.

In many cases the heir to the farm land will be able to claim agricultural relief/business interest relief in order to reduce the inheritance tax liability.

However, if the entitlements fall into the residue of the estate, the person who inherits them is unlikely to qualify for these tax reliefs as they may not meet the eligibility criteria. Bearing in mind that inheritance tax is paid at 33pc this could be a significant tax liability.

It is very important that the entitlements are specifically assigned to an heir/s under the will.

Single Farm Payments are treated as agricultural property for Inheritance Tax purposes and can qualify for tax relief provided the heir meets eligibility criteria.

Although the option to sell the entitlements will be available to the heir, they will most likely have to pay inheritance tax on the value of them prior to this.

In the case of inherited entitlements, a Transfer of Entitlements application must be submitted before May 15 to the Department along with proof, such as a copy of the will.

Herd numbers normally transfer with land. If the person inheriting the land intends to carry on farming, s/he should apply to the Regional Veterinary Office to have the herd number transferred into their name.

Bank accounts

Remember also that banks can be slow to release funds from the deceased's account. Having a joint account could ease this difficulty.

Understanding the consequences of dying without a will, that is to die intestate, is essential when deciding whether it is the right time to make a will.

It may well mean that your property and finances are not divided up the way that you would have intended and also that things like entitlements pass to a person who may be liable to a greater level of taxation than is necessary.

Making a will is a task that most of us try to avoid or postpone as it reminds us of our inevitable mortality. However, for those left behind, a well-planned will could make dealing with the practicalities of life much easier at a time of great distress.

Theresa Murphy is a barrister based in Ardrahan, Co Galway

Indo Farming