Succession Planning for Farmers – TippFM 30/06/15
In Budget 2015, tax incentives were introduced to encourage land transfer and more productive use of agricultural land. Were these significant?
The changes in Budget 2015 have been generally welcomed by the farming community in a move that is said to encourage long term farming. The government’s aims through the measures available are to try to maximise land use and efficiency while making it easier for farms to be transferred or gifted so as to assist the younger generation of farmers coming through the ranks.
In summary some of the available tax measures are:
- A Stamp Duty exemption for leases of agricultural land to active farmers lasting between five and 35 years;
- Allowing reduced Stamp Duty of 1% (instead of 2%) on transfers of non-residential property to certain relatives (who are active farmers) until the end of 2017;
- Capital Acquisitions Tax Relief continuing for agricultural property gifted to or inherited by active farmers or those who are not active farmers but lease the land to active farmers on a long term basis;
- Capital Gains Tax retirement relief expansion so that the relief would still apply if land is leased out for up to 25 years prior to disposing it (previously up to 15 years was allowed);
- Allowing Capital Gains Tax farm restructuring relief to the end of 2016 and broadening it to allow for restructuring through whole farm replacement;
- Extending Capital Gains Tax retirement relief to land let under conacre which is disposed of, or converted to long term lease before the end of 2016;
- Income tax exemption threshold increasing by 50 % for those leasing out farmland and also allowing relief to companies and those who are under 40 years of age;
Will the changes encourage land transfer do you think? Why?
The incentives that are available should encourage the transfer of lands, certainly to active farmers given the reliefs available. The fact that Stamp Duty Relief is also available on transfers of land to Young Trained Farmers who fulfil certain criteria until the end of 2015 will also mean that young farmers in particular would seem to benefit from the current regimes.
How will these changes impact on the way wills will be made? Or will they have an impact?
This will depend on the particular circumstances of those involved. Taxes payable on inherited assets will be subject to whatever regime is in place when the person passes and so the situation then may be different to now. It is therefore a decision based on many factors such as finances, lifestyle, family relationships, age, health issues and the farm itself amongst others as to whether transfers should take place now, while still alive, or by inheritance through your will.
If a landowner/farmer wants to transfer land to a relative, what should they do? What would you advise?
Transferring the family farm or farm land is big decision and it is critical that somebody who wishes to transfer would speak to their solicitor at the earliest stage to discuss the various ways that this can be done and to highlight any potential issues that may occur in doing so. There is no “one size fits all” way to transfer and each option needs to be considered, along with their various pros and cons. The main objective is to ensure that the person transferring is happy in the way that the farm has been secured for the future and to ensure that if the lands transferred are their sole source of income that they are protected with an income source. Ownership of the land can also be relevant in terms of providing for nursing home fees for example into the future so there can be a lot of areas that the landowner may be unaware of that their solicitor will guide them through.
Some of the various options outside of a straight transfer of all assets can include:
- A transfer to joint names;
- A lease agreement;
- A transfer of the lands with the transferor maintaining an interest in the farm by way of a business partnership;
- Transferring of a farmhouse but reserving a right of residence for the transferor;
- Transfer of certain lands and assets but not all;
- Transfer of certain lands and assets during lifetime and others on death.
Do the changes make it easier for farmers/landowners to do more with their land?
Yes – the changes from a tax point of view are helpful in providing reliefs and the financial consequences of selling, transferring, leasing or otherwise are usually one of the main decision making factors.
There are however other factors that will need to be addressed before finding the right option open to you and a full analysis should be done together with your solicitor before making a final decision.
In certain cases also consent of other parties such as co-owners or lenders may be required before any decision can be made.
What benefits can they expect if they long-term lease?
The benefit of leasing as opposed to transfer is that you would retain ownership of the lands and the tax measures in Budget 2015 do make the leasing option more financially attractive than previously from both a Lessor’s point of view with Income tax and the Lessee’s point of view in Stamp Duty. It has been thought in some quarters however that more should be done to encourage leases within families and to provide additional reliefs to encourage this. In practical terms leasing will not suit every farmer.