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Farming & succession: why now is the best time to think about succession?

Sinéad Dooley, Tax Director, Private Clients & Tatiana Kelly, Senior Manager, Tax Technical and Policy

Farmers form the backbone of the agri-food sector, which is our most important indigenous exporting industry, playing a vital role in the economy, with 135,000 farms producing over €9.5 billion in output annually. In 2021 agri-food exports accounted for 9.3% of total merchandising exports, with a value of €15.4 billion, marking growth of 50% since 2012.

The land holds a special place in Irish farmer’s hearts and with that in mind, it is important for a plan to be put in place for the future of the farm. Passing the farm from one generation to another, whether by way of a gift or inheritance, requires consideration of taxes for both parties. While Benjamin Franklin famously said that “in this world nothing can be said to be certain, except death and taxes,” timely succession planning can help to achieve some certainty and also a reduction or even elimination of taxes, thus allowing the successor to the farm to focus more on the challenges currently facing farmers such as climate change and rising costs, rather than worrying about financing a tax bill.

The Minister for Finance announced very minor farm specific changes in the Budget 2023 speech. A number of reliefs were extended to 31 December 2024, namely some Stock Relief, Young Trained Farmer (YTF) Stamp Duty Relief, CGT Farm Restructuring Relief and Farm Consolidation Stamp Duty Relief and Accelerated Capital Allowances for modern slurry storage facilities was introduced. There were no tax changes announced relating to agri-farming succession, such as the reliefs referred to below, and the Finance Bill has confirmed this.

However, despite no changes in this Finance Bill, we would continue to encourage farmers to consider a lifetime transfer of the farm, in light of the following recent recommendations.

The review of the Capital & Savings Taxes & Stamp Duty Tax Strategy Group paper (TSG paper) and the Commission on Taxation and Welfare (COT) Report, which are the guiding documents for the Government in drafting the Finance Bill, have flagged a number of warning signs in the context of farm succession. The TSG is not a decision-making body and the papers produced are essentially a list of options and issues to be considered in the Budgetary process. This year, the COT was also tasked by the Government to independently consider how best the taxation and welfare systems can support economic activity and promote increased employment and prosperity in Ireland. While some of the COT recommendations did feature in Budget 2023, other recommendations associated with heavier taxation of capital, wealth, and consumption were left for further consultation and review. But the seed was planted, and it is likely to only be a matter of time before such proposals come under the microscope of tax administrators and policy makers.

So, what in these reports may impact upon farm succession? The TSG considered options such as reducing/increasing the CAT rate and group thresholds, reducing Agricultural and Business Reliefs to 80% and the extension of Farm Consolidation Relief and YTF Stamp Duty Relief.

Specifically, on YTF Stamp Duty Relief, the TSG paper noted that the age profile of Irish farmers continues to be a cause for concern, with the Teagasc National Farm Survey reporting the average age of farmers in Ireland in 2020 as 59.2 years, up from 55.4 years in 2016. The Government therefore recognised the challenge of succession management for farmers and the importance of the tax reliefs such as those outlined below. It could reasonably be inferred then, having read the TSG paper, that there is no cause for concern for farmers in the context of succession. However, any comfort would be short-lived in light of the COT Report published in September. The COT, in the context of farm succession, recommended measures such as:

  1. Restricting the CGT Principal Private Residence Relief over time.
  2. Introducing a lifetime limit on all disposals of businesses and farms to children that qualify for Retirement Relief.
  3. Substantially reducing the CAT Group A threshold of €335,000 to bring it closer to the Group B threshold of €32,500.
  4. Reducing the level of Agricultural and Business Relief as they consider the current 90% reduction to be excessive and amending the qualifying conditions for both reliefs to incentivise and ensure more active participation in the farm or business.

While none of the above recommendations were transposed from the COT Report into the Finance Bill, this may be the calm before the storm as these recommendations may well feature in future Budgets. Currently there are generous agri-succession reliefs available such as the following:

1. Capital Gains Tax (CGT) - Landowner

Where the landowner is over 55 and has owned and farmed the lands for over 10 years, they may qualify for Retirement Relief to reduce or eliminate their CGT liability. There is no limit on this relief where the parent is aged between 55 and 65 however once they reach 66, a Retirement Relief limit of €3m would apply on a transfer to a child and it is therefore important to plan around this as required.

A transfer of the farmhouse in which the landowner has resided should qualify for Principal Private Residence Relief however it would also be important to ensure that the landowner is sufficiently provided for on a transfer of their home.

2. Capital Acquisitions Tax (CAT) - Beneficiary

A child can receive gifts or inheritances from both of their parents of up to €335,000, with CAT arising on the excess over this amount (currently at 33%). This is a lifetime limit so all previous gifts or inheritances received since 5 December 1991 would reduce this limit.

However, there is a valuable relief for a farm transfer known as Agricultural Relief which would reduce the taxable value of the agricultural property by 90% for CAT purposes. For example, a transfer of a farm valued at €2m, with Agricultural Relief applying, would be considered €200,000 for CAT purposes and as this would not exceed the CAT-free limit of €335,000, no CAT should arise for the child (CAT of €550,000 could otherwise arise). There are conditions to be satisfied to qualify for Agricultural Relief, encouraging the active farming use of the lands, but with proper planning these can be relatively easily satisfied.

3. Stamp Duty - Beneficiary

The current rate of stamp duty is 7.5% on non-residential property which can be difficult to fund for the child who receives farmland but no cash. However, there is a relief for a transfer of farmlands to a blood relative who will be actively farming, known as consanguinity relief, which reduces this rate to 1%, making this cost much more manageable. Young Trained Farmers, aged under 35 and holding an agricultural qualification, may also avail of a full stamp duty exemption where they will farm the lands themselves.

As a result of the above reliefs, with proper planning, the transfer of the farm can be completed with little to no taxes arising thereby retaining much needed cash for investment in the farming business to ensure its viability into the future.

However, in light of the COT Recommendations, putting a plan in place for the succession of the farm is now more important than ever. While a lifetime transfer ensures certainty in terms of valuations and tax reliefs, when it comes to succession, the landowner does not have to retire and hang up their wellingtons; in many cases, they may not retire. There are also a number of other options available, which may include continuing to farm but putting a will in place providing for the farm; entering into a partnership with the intended successor, thus allowing them to become more involved in the day to day running and decision making of the farm business; or leasing the farm (while ensuring the lease does not impact on the availability of tax reliefs on a future transfer). That plan can then be reviewed at a later stage to consider whether it is working, whether circumstances have changed, and it can be adjusted as required, to ensure the long-term viability of the farming business and the retention of the farm within the family long into the future.

Please note this article first featured in the Irish Independent Farming section on Tuesday 8 November, 2022 and was re-published on our website.

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