Succession planning can be a relief to next generation
Seek professional advice before retiring to ensure a smooth transition with maximum benefits
Managing a family farm is not all about the actual daily running of the farm but also about ensuring that the farm stays as a thriving business entity and is successfully passed onto the next generation.
If you are considering retiring from the farming business, it is important that professional advice is obtained long before you retire to ensure a smooth transition.
There are a number of tax reliefs available to the retiring farmer who is considering passing on their interest in the farm to their children or other interested third parties. These tax reliefs are retirement relief for capital gains tax (CGT); agricultural relief and business relief for capital acquisitions tax (CAT) or gift and inheritance tax as it's often referred to; and young trained farmer relief and close relative relief for stamp duty.
The spectre of an upcoming Budget with significant input by the Labour Party should provide added motivation for any farmer considering succession planning. Speculation is that current generous tax reliefs that allow for a tax efficient transfer of a family farm will be curtailed or removed completely.
Where farm assets are passed on under a will there is no CGT charge. However, where farm assets pass on during the life-time of the farmer there will be a charge to tax. Although the farm may be transferred by way of a gift and the donor may receive no consideration for the transfer, a CGT charge may still arise as the donor will be deemed to receive proceeds equal to the market value of the farm. The current rate of CGT is 25pc.
Retirement relief is available to reduce any gains on the disposal of a farm where an individual is over the age of 55. Where the disposal is to a farmer's child, there is no limit on the value of the disposal. However, the child in question must retain the asset for a period of six years to avoid a clawback of the relief. Where it is to a third party, there is a limit of €750,000 on the value transferred for the purposes of the relief. Where the amount is more than this, a reduced rate of relief applies.
To qualify for the relief, the farmer must have owned the land for a minimum period of 10 years before the disposal. The land must also have been farmed throughout this 10-year period. Where the land has been let prior to the transfer, relief may still be available as the conditions are relaxed in certain circumstances. Relief can be lost where the land is held by a husband and wife, only one of whom farms the land.