All you need to know about the new succession farm partnerships
Succession farm partnerships are a new income tax incentive to encourage farmers to transfer the farm business to their identified farming Successor.
It applies only to partnerships that are registered on the register of succession farm partnerships maintained by the Department of Agriculture, Food and the Marine.
The new register will be open for applications from June 1, 2017.
Existing partnerships that are registered with the Department of Agriculture, Food and the Marine can transfer to the succession farm partnership register by fulfilling the additional criteria required by the incentive.
The incentive at the time of compilation of this booklet is in the form of 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.
The key criteria 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.
2. Farmer eligibility
At least one partner in the Succession Farm Partnership must be a natural person who has farmed at least 3 hectares in his/her own right for the two previous years. This person is defined as the “Farmer”.
3. Successor eligibility
Aside from the Farmer at 2 above, the other partner(s) must be a young trained Farmer who is in receipt of 20pc of the partnership profits. This Partner is defined as the “Successor”. The income tax credit cannot be claimed in the calendar year where the Successor reaches 40 years of age.
4. Farm Plan
The Teagasc My Farm My Plan Booklet must be completed for the partnership. Teagasc is the certification body for this farm plan. This is freely available to download from the Teagasc website www.teagasc.ie.
A legally binding agreement (such as the one within, adapted to the needs of the parties), 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 must specify the year of transfer and outline the assets to be transferred. The year of transfer must be within 3 to 10 years of registering with the DAFM to claim the tax credit and a minimum of 80% of the farm assets outlined in the agreement must be transferred.
6. Bank mortgages/charges
When a bank lends money it normally looks for security. That is, some asset which they can call on to satisfy their loan if it remains unpaid. In farming, the security is usually a legal mortgage or charge over land so that the bank can sell or let the land themselves if their loan is not repaid.
This succession agreement agrees to transfer farming assets including land. If a person takes a transfer of land which is mortgaged or charged, the person taking the transfer (for example son/daughter) will also become liable for the mortgage/charge. A bank might also require the two parties to enter into a new mortgage/charge in connection with the agreement/transfer. Modern mortgage/charge documents are very broad in their scope. Particular care must be exercised if a new loan document is to be executed by the parties to the agreement.
It is essential that the Parties consult with their Solicitor, Accountant and Lending Institution to clarify the existing borrowing arrangements of the Farmer, the existing borrowing arrangements of the Successor, and the proposed borrowing arrangements proposed in connection with this agreement. Matters which should not be overlooked include liability for guarantees given and security for present and future advances, and the liability of other parties in the event of default by one of them. The following are some of the questions which need to be clarified before any documentation is signed or assets transferred:
- Are any of the assets to be transferred, in particular the land, provided as security in any way for borrowings or loans of any kind?
- What are the borrowing commitments of the Farmer (if any), farming and non-farming?
- What has the Farmer offered as security (if any) for any/each of those borrowings? (In this context, a copy of the latest facility letter from any bank involved will be helpful).
- Has the Farmer guaranteed loans for any other person (e.g. son/daughter/spouse)?
- What are the borrowing commitments of the Successor (if any), farming and non-farming?
- What has the Successor offered as security (if any) for any/each of those borrowings. (In this context, a copy of the latest facility letter from any bank involved will be helpful).
- Has the Successor guaranteed loans for any other person (e.g. son/daughter/spouse)?
7. Legal title
The Successor should satisfy him/herself that he/she will be acquiring good marketable title to the lands to be transferred on foot of this agreement, or if not, should be fully aware, on advice, of any relevant matter, burden, charge, etc. Independent legal advice should be obtained.
8. Co-ownership of land/Multiple Successors
In situations where there is co-ownership of the land intended for transfer to the Successor, this specimen will have to be amended accordingly to take account of such circumstances. Similarly, in situations where there is more than one Successor, this specimen will have to be amended to take account of the particular circumstances.
1. Do I need to be on the existing DAFM register of farm partnerships to form a Succession Farm Partnership?
Yes. It is necessary to have a current partnership on the DAFM register of Farm Partnerships to avail of the Succession Farm Partnership Scheme. Frequently asked questions on the DAFM register of Farm Partnerships can be found here
2. What are the benefits of being entered on the Register of Succession Farm Partnerships
In addition to the benefits of forming a partnership including preferential stock relief, the support of the collaborative farming grant and the fact that the Department ensure that the members of all registered partnerships are fully catered for in the implementation of CAP Schemes such as BPS, ANC, TAMS and GLAS, there are a number of other benefits specific to the entering a Succession Farm Partnership agreement.
These include a tax incentive to the partnership of €5,000 for up to five years during the Succession Agreement term until the identified successor(s) reaches the age of 40 (where there are multiple successors named the tax incentive ends when the eldest successor reaches 40.
Other benefits include the efficiencies gained from the certainty provided by having planned succession within the business. The scheme is designed to encourage the successor to become invested in the enterprise as early as possible to be fully ready to take over when the time is right.
3. If I form a Succession Farm Partnership, do I need to have a Will also?
Yes. It is very important to have a valid will which reflects your wishes in relation to how you want your estate to be passed on (i.e. it reflects your succession agreement) This is necessary because if the Farmer should pass away during the term of the Succession Partnership, the partnership is dissolved and the normal rules as per the Succession Act apply to the transfer of the estate.
4. What happens when the term of the Succession Partnership Agreement ends?
If the partnership is still active at the end of the term of the succession partnership agreement, the partnership will revert to the main Department register of farm partnerships and will operate under the rules for the main register.
5. When do I have to transfer my assets to my successor and what proportion must I give?
Under the terms of the scheme the farmer will still be required to transfer a minimum of 80pc of all assets to the successor between 3 and 10 years over the term of the succession partnership agreement.
6. Can I name more than one successor under the scheme?
If the farmer wishes to name more than once successor they may under the terms of the scheme. It should be noted that the proportionate transfer of assets should be clearly outlined in the succession partnership agreement. The farmer will still be required to transfer a minimum of 80pc of all assets to the named successors between 3 and 10 years over the term of the succession partnership agreement.
7. Can any of the parties to a Succession Farm Partnership be incorporated?
No. The agreement must be between the Farmer and Successor and both must be natural persons. Any incorporated members of your existing registered farm partnership cannot be party to the succession farm partnership agreement.
8. Are there financial supports available for setting up a Succession Farm Partnership?
When you are entering the register of farm partnerships, registered partnerships may apply for the collaborative farming grant under the rural development programme. Details can be found here.
9. Is there a limit to the number of people who can be in a Registered Succession Farm Partnership?
As with a registered farm partnership, a succession farm partnership may not consist of more than ten partners, made up of Category (i) and Category (ii) partners and Category Other. The first partner must be Category (i), the second must be Category (i) or Category (ii). Third and subsequent partners may from any of the three categories.
10. Where can I find more information on the Succession Farm Partnership Scheme?
Additional information is available online at DAFM and Teagasc websites (include links) or through your farm advisor. To make an application, you should speak to your farm advisor in the first instance. It is also recommended that you take professional legal and financial advice before entering into a Succession Farm Partnership agreement.
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