For farmers thinking about succession, a farm partnership can be a good business model for the succession period. Tom Curran, Teagasc farm management specialist, outlined five partnership options at the ICMSA succession meeting in Tullamore on 16 January.
1 Succession farm partnership
In a succession farm partnership, the agreement is that 80% of the farm assets (land, buildings, BPS entitlements, livestock and machinery) are transferred to the successor within three to 10 years from the date of registration. The incentive is a €5,000 tax credit for five years (€25,000). Due to the fact that the asset transfer cannot take place for three years, this sometimes poses issues where the successor is over 32 years of age.
The successor must be less than 40 years of age at the beginning of the tax assessment year. The tax credit claimed must be repaid if the farm assets do not transfer as specified in the agreement and limited companies to not qualify for tax credit. The credit can be claimed after the transfer, but must be within five years.
2 Contract heifer-rearing
This form of partnership is an agreement to contract-rear heifers between a heifer rearer and a dairy farmer. Teagasc’s Tom Curran advises that a written agreement is essential.
The advantage of contract-rearing is that is provides a steady monthly cashflow and eliminates the risks associated with market price fluctuations.
“No money is tied up in livestock because you are not buying it and it can help to increase the stocking rate and output on the farm,” Curran said.
It allows the dairy farmer to replace heifers with cows on the grazing platform and frees up labour.
Tom Curran speaking at an ICMSA event on farm succession in January. \ Thomas O'Hanlon
3 Long-term land leasing
There are tax incentives for long-term leasing. A written legal lease, stamped by Revenue, can be between five and 15 years long under this option.
The lessor can avail of a tax-free income threshold, while the person renting the land has the security of tenure and higher return on capital invested.
Each landowner can qualify for the following annual income tax exemptions on qualifying leases.
Lease period five to seven years. Up to €18,000 annual rental income per landowner is exempt from income tax. Lease period seven to 10 years. Up to €22,500 annual rental income per landowner is exempt from income tax.Lease period 10 to 15 years. Up to €30,000 annual rental income per landowner is exempt from income tax.Lease period greater than 15 years. Up to €40,000 annual rental income per landowner is exempt from income tax.
The allowable rental income can be a combination of land value and Basic Payment.
4 Share-farming
This option brings together two independent businesses on one farm. The landowner provides the land, facilities and maybe some stock. The share-farmer provides the labour and can provide some stock and machinery.
5 Cow leasing
Cow owners can lease cows to another farmer under a cow leasing agreement, charging an annual lease payment per head. This reduces short-term setup costs for farmers starting off. Again, the written agreement is essential to set out the key requirements. A template for this is available from Teagasc.
Read more
Landowners claim €19m in land leasing relief
To lease or share – that is the question
You could be further up the succession ladder than you think
Is it worth writing a will?
For farmers thinking about succession, a farm partnership can be a good business model for the succession period. Tom Curran, Teagasc farm management specialist, outlined five partnership options at the ICMSA succession meeting in Tullamore on 16 January.
1 Succession farm partnership
In a succession farm partnership, the agreement is that 80% of the farm assets (land, buildings, BPS entitlements, livestock and machinery) are transferred to the successor within three to 10 years from the date of registration. The incentive is a €5,000 tax credit for five years (€25,000). Due to the fact that the asset transfer cannot take place for three years, this sometimes poses issues where the successor is over 32 years of age.
The successor must be less than 40 years of age at the beginning of the tax assessment year. The tax credit claimed must be repaid if the farm assets do not transfer as specified in the agreement and limited companies to not qualify for tax credit. The credit can be claimed after the transfer, but must be within five years.
2 Contract heifer-rearing
This form of partnership is an agreement to contract-rear heifers between a heifer rearer and a dairy farmer. Teagasc’s Tom Curran advises that a written agreement is essential.
The advantage of contract-rearing is that is provides a steady monthly cashflow and eliminates the risks associated with market price fluctuations.
“No money is tied up in livestock because you are not buying it and it can help to increase the stocking rate and output on the farm,” Curran said.
It allows the dairy farmer to replace heifers with cows on the grazing platform and frees up labour.
Tom Curran speaking at an ICMSA event on farm succession in January. \ Thomas O'Hanlon
3 Long-term land leasing
There are tax incentives for long-term leasing. A written legal lease, stamped by Revenue, can be between five and 15 years long under this option.
The lessor can avail of a tax-free income threshold, while the person renting the land has the security of tenure and higher return on capital invested.
Each landowner can qualify for the following annual income tax exemptions on qualifying leases.
Lease period five to seven years. Up to €18,000 annual rental income per landowner is exempt from income tax. Lease period seven to 10 years. Up to €22,500 annual rental income per landowner is exempt from income tax.Lease period 10 to 15 years. Up to €30,000 annual rental income per landowner is exempt from income tax.Lease period greater than 15 years. Up to €40,000 annual rental income per landowner is exempt from income tax.
The allowable rental income can be a combination of land value and Basic Payment.
4 Share-farming
This option brings together two independent businesses on one farm. The landowner provides the land, facilities and maybe some stock. The share-farmer provides the labour and can provide some stock and machinery.
5 Cow leasing
Cow owners can lease cows to another farmer under a cow leasing agreement, charging an annual lease payment per head. This reduces short-term setup costs for farmers starting off. Again, the written agreement is essential to set out the key requirements. A template for this is available from Teagasc.
Read more
Landowners claim €19m in land leasing relief
To lease or share – that is the question
You could be further up the succession ladder than you think
Is it worth writing a will?
This is a subscriber-only article
SHARING OPTIONS: