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The potential benefits and unseen implications of farm partnerships

In this article, That’s Farming looks at the finances around farm partnerships, including their potential benefits and unseen implications.

According to RDA, a farm partnership is a legal arrangement where two or more individuals come together, combining their respective resources to achieve mutual benefits.

Assuming that one of the partners qualifies as a young trained farmer, there are financial advantages, as well as commercial benefits.

A registered farm partnership will have taxation benefits, in addition to the enhanced entitlement to the Department of Agriculture, Food and Marine payments.

Tax Relief

Firstly, forming a registered farm partnership creates a reduction in the overall liability of tax.

Assuming the child is single, they will pay tax at 20% on the first €35,300 of their share of the farm profits.

Should your spouse have no income, you will pay tax at 20% on a lower rate of income.

Furthermore, this means that profits from your registered farming partnership could be charged to tax at the 20% rate – depending on the split of profits and levels of profits.

Stock relief

According to Revenue, stock relief is given as a deduction from trading income. It is calculated by reference to the increase in the value of farm trading stock over an accounting period.

Stock relief reduces farm profits by reference to the increase in stock values for an accounting period.

The deduction is defined as a percentage of the increase in the value of the trading stock as follows: 25% standard relief for farmers.

For example,

  • Opening stock at January 1st: €20,000
  • Closing stock at December 31st: €25,000
  • Increase in value of trading stock: €5,000
  • Farming profits year ended December 31st: €6,000
  • Less stock relief deduction (€5,000 x 25%): €1,250
  • Revised farming profits: €4,750
Benefits 

Enhanced stock relief is available to a registered farm partnership. A young trained farmer will avail of 100% stock relief of the increase in the value of livestock for the first four years for their share of the farm profits.

In addition to this, the other partners in the partnership- will benefit from 50% stock relief on their profit portion, an increase from the normal rate of 25%.

The upper limit that can be claimed by a young trained farmer is €70,000 over a four-year period following setup, and the maximum that can be claimed in any one year is €30,000.

Succession farm partnerships

In 2017, a succession tax credit was introduced on the basis to encourage experienced farmers to join in partnership with younger trained farmers, and to facilitate the transfer of ownership to these young trained farmers.

There is an annual tax credit of €5,000 for up to five years for succession farm partnerships.

No partner in succession farm partnership is entitled to the credit in a year of assessment whereby the successor has reached the age of 40 in that year.

The criteria for this relief include:

  • One partner must have farmed independently for a minimum of two years on three hectares;
  • Complete a certified farm business plan for the partnership;
  • One partner should be considered trained and must have a profit share of at least 20% in the partnership, and has not reached the age of 40-years-old.
  • The €5,000 income tax credit is split annually in accordance with the profit-sharing ratio of the partnership, between the farmer and the successor.
Tax implications

In terms of capital gains tax implications, land licenced in a partnership is strictly an investment and a gain at its disposal. The land is excluded from capital gains tax retirement relief.

Where no rent or consideration of payment for the land has been paid by the registered farm partnership to the partner who owns the land, it will be regarded as a chargeable business asset.

In turn, retirement relief would be available to this individual farm, based on the disposal of the land.

In circumstances whereby a partner and a spouse – whose spouse does not wish to join the partnership – own land, you can obtain a certificate from the DAFM proving exemption from entering the partnership.

For stamp duty purposes, where land is licenced in the partnership, the availability of stamp duty relief on transfers of land to young trained farmers will not be affected. This is the case where the conditions set out for the relief are met.

A capital gains tax charge can arise on the dissolution of a registered farm partnership. Any gains occurring will be charged to the individual farmers.

Collaborative Farming Grant Scheme

Establishing a farm partnership is an expensive process. However, you may be able to avail of support to reduce the financial burden of such a succession.

This grant covers part of the legal, advisory and financial costs of setting up a partnership agreement.

Grant aid of 50% is payable on the establishment costs of setting up a registered farm partnership.

The maximum spend that is grant aided is €5,000, providing a maximum grant of €2,500. Receipts and invoices involved with the direct establishment of the registered farm partnership.

How to join

According to Teagasc, there are now approximately 3,000 registered farm partnerships in Ireland.

A farmer may only be a partner in any one partnership at any one time, to which such an agreement is in place for five years.

Farms involved in the partnership must not be more than 75km apart from each other. Initially, all partners who are potentially involved in creating a partnership should discuss how a partnership would look like and operate in your circumstances.

In addition to this, contact farmers who are already involved in partnerships; get their opinion, and see how they feel about the approach.

Consult will all three parties, your accountant, solicitor and agricultural advisor. The partnership would then be registered as a business with the Revenue, and a capital account would be developed.

Then, you will have to establish bank accounts, including the name of all partners involved and you must complete documentation, including the partnership and on-farm agreement.

Furthermore, gather all farm maps and agricultural qualifications for the young trained farm.

Lastly, complete your application and send to the Farm Partnerships Registration Office, Floor 3, Agriculture House, Kildare Street, Dublin 2.

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