If you’re keeping up to date with the goings on in Wolfe & Co LLP, you will be aware that Vivienne Ring Conveyancing Partner and I recently attended a meeting and clinic hosted by Teagasc on ‘Transferring the Family Farm’ at the Celtic Ross Hotel in Rosscarbery. The purpose of the meeting and clinic was to help farming families in West Cork familiarise themselves with some of the complex issues that can arise while developing a farm succession plan. The meeting has therefore inspired this week’s edition of Aislinn’s Articles.
Succession and inheritance are very complex subjects. There is no “one size fits all” answer for any farming family. There are many different people and professionals involved and it is essential that these people and professionals are involved in the early stages of your succession plan.
Bringing all family members into the transfer and decision-making process is always advised. Communication is key when it comes to your succession plan. This will help to safeguard against any possible future problems that may arise. Family meetings to discuss the transfer should be held. It is important to keep in mind that if a decision is made to transfer the farm to an eldest child while there are still younger children to be supported, then provision may need to be made for this. You should also be sure to include any non-farming children and how they may need to be provided for. Crucially for parents, if you are transferring the farm to one of your children and you are still too young to qualify for a pension, then you also need to ensure that you receive an income from some source. You should also be very mindful of any future costs that you may have such as possible Nursing Home costs. These are all discussions that should be had early on in the succession plan. Once you have a clear idea in place, then you should contact your agricultural advisor.
If you are thinking about transferring your family farm, your agricultural advisor should be your first call. Your advisor has first-hand experience dealing with your farm and how it is run. They will therefore be well placed to advise you on the transfer. It is at this meeting that you will be able to tease out the ideas that were discussed at your family meeting. At this stage you should have your plan in place. Your next step should be to contact your accountant.
Getting solid taxation advice is the key to creating a successful succession plan. In Ireland, there are a set of taxes chargeable whenever a change in ownership of an asset occurs. It is essential that you would speak to your account about your potential taxes but briefly these are:
- Capital Gains Tax (CGT) – this tax looks to apply tax on the increase in value of an asset. This tax is payable by the transferor of the asset during their lifetime. It is calculated as “current value at date of transfer minus value when assets first acquired”. The gain can be adjusted to take improvements made to the asset into account and the effect of inflation can also be taken into account. The main saviour of this tax is CGT Retirement Relief. There are conditions to be met with this relief in that the owner must be 55 years at the time of the transfer and the owner must have owned and used the asset for the previous ten years. Again, a discussion with your accountant is necessary.
- Capital Acquisitions Tax (CAT) – this tax targets the person receiving assets via a gift (lifetime transfer) or an inheritance (on a death). There are tax free thresholds that apply depending on the relationship between the parties to the transfer. For farmers, the main saviour from CAT is Agricultural Relief which if applicable will reduce the value of the assets for calculation to 10% of its value. There is a Farmer Test which needs to be fulfilled in order for this relief to apply which should be discussed with your accountant.
- Stamp Duty – this tax is levied where an official Revenue Stamp is applied to the official transfer document. It applies to assets that require such official documentation to give legal effect to the transfer. This tax is levied on the recipient of the asset. The rate of Stamp Duty payable depends on whether the asset is residential property or not. There are two reliefs that can apply; 1) Consanguinity Relief can reduce the Stamp Duty owed whereby the transfer is occurring between blood related parties and 2) Young Trained Farmer Relief whereby a farmer under 35 years of age with appropriate qualifications can get full relief from Stamp duty. These are complex reliefs which require discussion with your accountant.
Taxes are something that should be thoroughly explored with your accountant. This advice is invaluable and should be sought early in the preparation of your succession plan so as to avoid the unnecessary leakage of valuable funds to pay unnecessary tax bills. Your final step in the process of transferring the family farm is your solicitor.
In terms of any transfer that you have planned, it is vitally important that you have spoken to your agricultural advisor and your accountant before contacting your solicitor. What your solicitor will do is draft and complete the necessary legal documentation to give effect to the plan that you have already put in place.
There are some other very important legal documents that you should think about preparing even if you are not yet in a position to transfer the family farm. These are:
- A Will – making your Will should be one of your top priorities in your succession plan. Your Will sets out how you wish your assets to be divided on your death. If you die without making your Will then how your assets will be divided will be determined by law. Read more about Wills here – https://www.wolfe.ie/the-importance-of-a-will-and-and-enduring-power-of-attorney/
- Power of Attorney – this is a legal document that gives one person (the attorney) the right to act in another person’s place (the donor) in general or for a specific purpose depending on what the document says. This agreement ends when the donor dies or becomes mentally incapacitated.
- Enduring Power of Attorney – this is a legal document where the donor states that the attorney will have the power to act in their place if the donor becomes mentally incapable or unable to look after their own interest. It ends on the death of the donor or if the donor revokes it. An EPA gives another person substantial control of your affairs and should be carefully set up with expert legal assistance. The way in which EPA’s are made has been significantly changed with the introduction of the Assisted Decision-Making Capacity Act 2015 and more detail can be read here – https://www.wolfe.ie/assisted-decision-making-capacity-act-2015-part-2/.
- Advanced Healthcare Directive – this is known as a “living will” and is a document containing statements declaring how you would like to be cared for in the future on the assumption that you may not be able to make these decisions for yourself at the relevant time.
Future planning and future proofing are vitally important. Of course, these are hard conversations to have and difficult decisions to make but your future self, your family and indeed your farming enterprise will thank you for taking the time to make these important decisions in a thorough and careful way.
Wolfe & Co LLP have a wealth of experience assisting farming families of west Cork and are available for any questions that you have.
By Aislinn Collins Solicitor.
This article is for general information purposes/general overview only and does not constitute legal or other professional advice. We recommend seeking legal advice to interpret and advise on any aspect of the law.
November 2023 Wolfe & Co. LLP Solicitors