Kieran Coughlan: What to do with the farm if no one is interested in taking it over
The Spared To Turmoil Of Natural Some Decisions Be Are A Least Farmers Making Of Blessed Successor Monumental At With
Some of the toughest decisions farmers must make are not in the field, or in the sheds but rather in the head when faced with the dilemma of deciding when to transfer the farm or to whom the farm is to be transferred.
Farmers with a natural successor are blessed to be spared at least some of the turmoil of making monumental decisions but, of course, must also face the question of when is the right time to transfer the family farm? It goes without saying, but each farmer's circumstances are unique. However, there are some common underlying themes when it comes to all transfers.
The first of these must surely be security for the transferor, a retiring farmer who owns their own home and has independent income, pension or savings is in a much stronger position than a counterpart who is dependent on some level of farm income to keep them fed and clothed would need greater surety of how they can fund themselves until they reach pension age, and perhaps further depending on their financial needs.
A lot of protections can be built in, such as rights of maintenance and support, retention of ownership of some of the farm and opting for joint ownership are just some of the options available to a transferor.
Skipping to the next fundamental step, having a clear understanding of the tax implications of a transfer and understanding the potential options to reduce or eliminate the taxes on the transfer of the family farm is also a must.
To get a true understanding of the tax implications of a proposed transfer, one needs to consider the three main capital taxes: capital gains tax, capital acquisitions tax (known as gift or inheritance tax), and stamp duty. But comprehensive tax advice should also encompass the income tax implications and PRSI. On the latter, missing out on PRSI contributions can result in the difference between receiving a higher rate or a reduced rate of State contributory pension.
A third common theme that affects all farmers is the potential risk that the Fair Deal nursing home scheme may have for themselves or their beneficiaries and whether an earlier transfer would reduce the risks of nursing home fees.
A fourth factor that is worth considering is what economists term the opportunity costs of holding on to the farm versus a sale. Innately, the default position of the majority of farmers is to transfer the farm and in many cases, a sale of the farm is not even entertained as an option.
Where a successor is not interested in farming, the opportunity cost of retaining ownership of the farm should in the cold light of day be put up for comparison against other options.
Take, for example, a farmer at the cusp of retirement with 40 acres of land worth €750,000, with two children, neither of whom has even the remotest interest in farming. The farmer could lease the land going forward for rental income of €14,000 per year under an income tax-free letting.
Say the children have a mortgage between them and their respective spouses totalling €750,000 over a 30-year term at 4% interest. By using the proceeds of the land sale to clear the mortgages, the two children will, as well as clearing their mortgage balance, also collectively save a whopping €539,000 in interest over the 30-year term. Getting to grips with the options in good time makes sense, even if one is not exactly at the stage of making a decision.
Understanding the options in good time can make a significant difference in that some options become available where the relevant criteria are met and teed up in advance of a transfer or sale.
A grant of 50% is available for farmers aged 60 or older, farming three hectares or more for the past two years for tax, legal or accounting advice covering up to 50% of the cost subject to a maximum grant of €1,500.
The tranche for 2024 grants closes at the end of December and now is a great time to consider getting good advice to explore the options.
