Advice: Everything you need to know about Succession Farm Partnership tax concessions
The long-awaited tax concession measures for Succession Farm Partnerships announced in the October 2015 budget have finally got the green light and qualifying partnerships are now free to register in order to qualify for relief in the 2017 tax year.
The primary aim of the measure is to encourage farmers to transfer the farm business to their identified farming successor(s).
To be eligible for the tax concession, a partnership must be registered on the register of succession farm partnerships maintained by the Department of Agriculture, Food and the Marine.
This new register should not be confused with the existing Farm Partnership Register, but partnerships that are currently registered can transfer to the succession farm partnership register by fulfilling the additional criteria required by the incentive.
Partnerships that are not currently on the existing farm partnership register will firstly have to register and meet all of the requirements of registration before they can proceed to the succession register.
The incentive in registering a Succession Farm Partnership is an annual income tax credit of €5,000 for up to five years. The credit is split annually based on the profit-sharing ratio of the partnership between the farmer and the successor.
So if a father and son had a 50:50 partnership they would each save themselves €2,500 in tax providing, of course, they had a tax liability of or exceeding this amount in the first instance.
It is important for the partners to consult their tax adviser in order to structure the partnership in a way that will make best use of the tax credit. Potentially, the scheme is worth up to €25,000 over a five-year period.
The key conditions to be met to qualify for the income tax credit are as follows:
Make a valid application to be placed on the register of succession farm partnerships maintained by the Department of Agriculture, Food and the Marine.
At least one partner in the Succession Farm Partnership must be a natural person (not a company) who has farmed at least three hectares in his/her own right for the two previous years. This person is defined as the "Farmer".
Aside from the Farmer as referred to above, the other partner(s) must be a young trained Farmer who is in receipt of at least 20pc of the partnership profits. This Partner is defined as the "Successor".
The year of transfer must be after 3 years and before 10 years of registering on the succession register to claim the tax credit.
The Farmer and the Successor must sign a succession agreement which contains an undertaking that a minimum of 80pc of the farm assets outlined in the succession agreement must be transferred.
The income tax credit cannot be claimed in the calendar year where the Successor reaches 40 years of age, so in other words the Successor can only claim the relief up to age 40.
A full clawback of all tax credit claimed will occur where the transfer does not go ahead.
Where a partnership is currently registered on the farm partnership register operated by the Department of Agriculture, a partnership agreement and an on-farm agreement will already have been drawn up so some of the work will already have been done.
However there is a significant amount of professional input required in putting together an application for entry on to the succession register that will involve the services of an agricultural consultant/advisor, a solicitor and an accountant or tax adviser.
The following are the principal requirements:
A five-year farm business plan must be completed for the partnership and this business plan must be certified by Teagasc.
A legally binding agreement separate to the farm partnership agreement must be signed by the Farmer and Successor, who are partners in the same registered farm partnership.
The succession agreement which is a 12-page document must specify when the transfer is to take place and outline the assets to be transferred. It must also include details of burdens, right of residence, input of banks where securities, guarantees and charges exist. The agreement must also clearly identify the lands which will be transferred on the transfer date.
While €25,000 is undoubtedly a substantial amount of potential tax savings over a five-year period, the question has to be asked - in the context of the national average farm income - how relevant is this measure and how much profit does a partnership have to earn before the tax credit comes into play.
My calculations would suggest that in order to make full use of the €5,000 annual credit in a 50:50 partnership of two individuals claiming the single person's tax credit with no other income, the partnership would need to be making a profit of approximately €40,000 after capital allowances.
Based on the Teagasc National Farm Survey figures (average family farm income of €23,848 in 2016), the average farming operation will not benefit at all unless there is also non-farm income.
This fact underlines the importance of having a tax adviser assess the likely benefit of the scheme before intending participants incur the not insignificant cost of application.
On a further note of caution that I highlighted in an earlier article on this topic, intending successors over 32 years of age and under 35 will not be eligible for the scheme if it is intended to transfer the farm before they reach age 35 in order to avail of the stamp duty exemption. Intending partners in that age bracket will need to do their sums on which scheme may be of greater value to them.
Martin O'Sullivan is the author of the ACA Farmers Handbook. He is a partner in O'Sullivan Malone and Company, accountants and registered auditors; www.som.ie
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