One of life’s most important decisions involves the transfer of the family farm to the next generation. Many farmers gift/transfer the family farm during their lifetime as the alternative is to deal with by Will. The most typical Deed of Transfer reserves rights of maintenance and support in favour of the transferor (and their spouse) over the lands being transferred. The advantage of this is that it prevents the transferee – usually the son in the family – from selling or mortgaging the lands without the prior consent of his parents. The farmhouse is usually excluded from the transfer as in most cases the transferee already owns his own house elsewhere on the lands.
The primary motivation for transferring the family farm appears to be that the transferor would then qualify for the Old Age Non-Contributory Pension because he/she is entitled to divest themselves of his/her assets in order to qualify for this pension.
In transferring the family farm however there are three taxes to consider:
- Stamp Duty: Chargeable at 1% of the value of the farm except if the transferee has the “Green Cert” and is under thirty five years of age in which case they will be exempt from stamp duty.
- Gift Tax: The tax free threshold from parent to child is currently €225,000, however in relation to agricultural land, reliefs are still very generous and only 10% of the value of the farm is assessable and in the vast majority of cases this would come within the limit of the tax free allowance of €225,000
- Capital Gains Tax: Even though the farmer transferring the land is not actually selling the farm it is still considered to be a disposal within the meaning of ‘The Capital Gains Act’ and thus akin to a sale. For this reason if the retiring farmer is above fifty five years of age and has farmed the lands over the previous ten years and the value of the land is less than €750,000 it will then be exempt from Capital Gains Tax.
Obviously all farmers contemplating a transfer of the farm should consult their own Accountant for taxation advice. Any farmer considering transferring to the next generation can consult a solicitor, preferably one with extensive experience in this area . The only caveat is that next budget (in October) may alter the existing taxation arrangements and allowances.