Why new partnership scheme will help phase in the next generation of farmers
Many farmers are aware of the labour sharing and financial benefits from farm partnership agreements.
Partnership agreements typically offer medium to long term solutions for issues facing both partners.
However, the new Succession Farm Partnership (SFP) scheme from the Department of Agriculture offers a solution to those partners who wish to transfer on some or all of the farm to their farm partner (typically a child or relative) in an efficient way.
The SFP uses an income tax incentive to encourage the transfer of farm assets from the existing farmer to the successor within a three to 10-year window from first registration.
Who can enter a Succession Farm Partnership?
The successor must be less than 40 years of age in any year that the tax credit is claimed and be in receipt of at least 20pc of the partnership profits and have completed the required level of agricultural education.
One partner must have farmed at least three hectares for two years prior to the formation of the SFP. Farmers who are farming through a limited company are not eligible to form a SFP.
How does it work?
Farmers who form a SFP can avail of an annual income tax credit of €5,000 per annum for up to five years which is split between the farmer and the successor in the partnership.
Farmers must firstly form a registered farm partnership with their successor.
To avail of the income tax credit, they must also complete the Teagasc 'My Farm My Plan' business planning booklet and sign a legally binding Succession Agreement.
Teagasc have created a specimen Succession Agreement which can be used as a template to be amended to suit the individual needs of those involved in each partnership.
Teagasc's Thomas Curran said: "This specimen Succession Agreement and explanatory booklet will provide clarity to farmers and their professional advisors, while also setting the standard in terms of the quality of agreements required by the scheme."
Banking & Security
A thorough review of all loans, guarantees and securities against farm assets such as land should be carried out by both partners prior to entering the Partnership.
This could give rise to problems later if the value of the farm asset is reduced due to borrowings against it. Teagasc have produced a template for listing these.
Updating/Making a Will
It is essential that any previous will made is updated in line with the Succession Agreement to ensure that both documents are consistent with each other. In situations where no previous will exists, a will must be put in place that is consistent with the terms of the Succession Agreement.
Value Added Tax (VAT)
VAT regulations are very complex. Where a Farmer is VAT registered and he intends to enter into a VAT registered SFP, specific taxation advice should be taken from an accountant.
The Transfer of Business rules and the Capital Goods Scheme may apply to farm buildings, farmyard facilities and land infrastructural developments less than 20 years old that are licensed in the partnership.
When farm land transfers during the lifetime of the Farmer, the Farmer (transferor) will be concerned with Capital Gains Tax and the availability of "Retirement Relief".
The successor (transferee) will be concerned with both capital acquisitions tax (CAT) and stamp duty.
The two main reliefs against these taxes for successors are Agricultural Relief against CAT and Young Trained Farmer Relief against stamp duty.
Both partners in the partnership should seek detailed advice on this area.
'My Farm My Plan'
To fulfil the Business planning requirement of the SFP scheme, the Teagasc 'My Farm My Plan' business planning booklet must be completed and a certificate of satisfactory completion issued from Teagasc. This booklet is free to download from the Teagasc website.
Moving from an Existing Registered Farm Partnership
Partnerships that are already registered with the DAFM Partnership Registration Office may also opt to register as a Succession Farm Partnership.
The partners must submit to the following documents to the Department's Farm Partnership Registration Office:
* A completed Teagasc My Farm My Plan business planning booklet
* A legally binding Succession Agreement
* A completed SFP Application Form
* The Successor's Birth Certificate
Evidence of the successors agricultural qualifications
The main partnership agreement may need to be amended to reflect changes made by the farmer and the successor when signing up to the Succession Agreement.
What happens after the transfer of the farm has taken place?
There are two possible options, 1. The partnership could continue for a further period of time involving the same partners or the partnership could end after the transfer of assets has taken place.
Where the partnership has ended, the successor can farm in his/her own right on the acquired lands. The partnership must be formally dissolved at this point.
Where the partnership is continuing, the partnership agreement must be updated to reflect the change in ownership of assets licensed in the partnership such as land, buildings and basic payment entitlements (or future equivalents).
There is also a need to adjust the amounts of capital contributions of the partners to the partnership.
The profit sharing ratio may also be amended in line with the change in asset ownership and changes in the partnership capital accounts but this is at the discretion of the farmer and the successor.
This article is intended as a general guide only, professional advice should be sought in relation to individual circumstances.
Theresa Murphy is a barrister based in Ardrahan, Co Galway
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