Farm Ireland

Thursday 22 February 2018

Think carefully on how best to transfer farms

Aisling Meehan

With major changes in the tax system anticipated in the upcoming Budget, tax and legal advisers are being flooded with farmers seeking consultations about transferring the family farm.

There are three matters to be considered when transferring the farm:

•Practical considerations

•Taxation and Social Welfare considerations

•Legal considerations.

For the purposes of this article, I will focus on 10 of the legal considerations involved in a family farm transfer.

1 Talk to your bank -- This applies if the property to be transferred is being used as security for a loan. Given the next Budget is just six weeks away, a farmer should speak to his bank if he has not already done so as their consent will be required to any proposed transfer. It may be necessary for the bank to restructure the loan in order for the next generation to take over the debt. If the bank is insisting on restructuring the loan or on new, higher interest rates, the transfer may not be feasible so it is important to establish this at the outset.

2 Auctioneers' valuation -- This will be necessary for your solicitor or accountant to advise you of any potential tax liability. Again, the potential tax liability will determine the feasibility of the proposed transaction. Also, if any tax reliefs or exemptions are being claimed, the instrument of transfer will have to be adjudicated by the Revenue Commissioners who will look for a copy of the valuation.

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3 Milk quota -- Obtain a statement from your co-op as to how much quota is available for transfer and how much has been filled so far in the quota year. Milk quota attaches to land that was used for milk production in the last quota year in which 90pc of the milk quota was filled. If the amount of quota transferring exceeds 12,500 litres/ha, ministerial consent will be required for the transfer. In some cases, quota can be transferred without land to a qualified relative.

4 SFP entitlements -- It may also be necessary to transfer entitlements if there is not enough land being retained by the transferor in order to activate those entitlements. The application to transfer the entitlements must be submitted in mid-May in accordance with the SFP application.

5 Locate the title deeds -- Historically, a solicitor would have located your title deeds, but much of this information is now available online through the Land Registry. If the property to be transferred is registered in the Land Registry, your solicitor can order certified copy folios and file plans directly from the organisation.

This will enable the solicitor to see whether there are any burdens registered on the folio which might affect the proposed transfer. Burdens might include a right of way in favour of the ESB or a sum of money due to an individual. The solicitor will have to get consent from those people in whose favour the burdens are registered.

6 Independent advice - While families normally instruct one firm of solicitors to look after all their business, in the case of a transfer of a farm for less than market value from a parent to a child, each party should receive independent legal advice. Due to the relationship between the parties, there is a presumption of undue influence or that the transferor is not exercising his own free will. In practice, some solicitors get the transferor to sign an acknowledgement that the transferor has been offered independent advice but has declined the offer. However, the danger arises that this would not be sufficient as it does nothing to rebut the presumption of undue influence.

7 Future security -- Parents should ensure that they retain security for themselves for the future. This can be achieved by:

•Retaining some of the land and leasing it together with the other land to be transferred, providing for a right to support; or

•Maintenance and/or providing for a right to nursing home care.

The right to support and maintenance normally provides a right to be supported and maintained on and out of the lands in the same manner as they have been accustomed to, together with provision of all necessary medical and domestic attendance, food, clothing, heating and lighting in the dwelling house. If the transfer provides for a right to nursing home care, a potential transferee should think long and hard before accepting such a burden, especially when one considers that the cost of nursing home care per person can be as much as €130,000/year.

8 Living arrangements -- The location of the farmhouse will determine whether it is a feasible proposition to have it owned separately from the farm. If the farmhouse is contained within the same folio as the lands, an engineer will need to mark the house out separately on a map, if the house is to be retained by the transferor. There is also a need to ensure independent water supplies and independent access. Provision should be made by Will as to what will happen to the house after the transferor passes away. This issue could potentially give rise to a dispute where the house is left in a Will to a non-farming sibling living elsewhere who perhaps wishes to sell the farmhouse in the future.

9 Other family members -- Provision can be made at the time of the transfer for other family members, such as the transferee paying them a cash amount or the transferor providing a site. There is no obligation on the transferor to make provision for other family members so long as the transferor is satisfied that they made proper provision for the child during their lifetime.

10 Will -- If the farm is transferred, the change will override the provisions in the transferor's Will. For example, if the Will provided that a site was to be transferred to another child and the site is transferred as part of the farm, the site will not be there for the other child when it comes to administering the Will. In addition, the Will may need to be updated after the transfer has taken place to deal with the transferor's other assets.

While there is potential for parents to be caught up in the frenzy of transferring the farm quickly before the Budget deadline, remember there are several other aspects to think of in a farm transfer other than tax considerations. It is important to weigh up all these different aspects before making the final decision about how to transfer the farm.

Disclaimer: While every care is taken to ensure the accuracy of this article, solicitor and tax consultant Aisling Meehan does not accept responsibility for errors or omissions. Tel: 061 368 412

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