One of the most comprehensive farm surveys ever undertaken in Ireland has found that succession planning continues to be a huge issue for Mayo farmers.
Martin Clarke, Partner at IFAC Mayo, looks at what farmers should be doing to plan for the future, saying: "Farm incomes are low, with profits often relying on subsidies, and farm families requiring off-farm income to support their households, a trend that has been growing steadily year on year. It is not surprising, therefore, that concern about viability is the top reason farmers cite for not having a plan.
"However, although they are cash poor, average land value across Ireland is around €9,072 per acre, potentially putting the value of a 33 hectare farm at circa €740,000, depending on the region.
"Without a plan, you could be lining up substantial costs for yourself and your successor where assets of this value are being transferred. Planning ahead allows you to avail of reliefs that can enable farmers to transfer assets to family members tax free.
"The first step in succession planning is to clarify your wishes, taking into account whether or not you have a successor, whether you want to continue to be involved in the farm, and what financial provision you need to make for yourself and other family members.
"Issues that need to be considered include: (1 ) Your future income. You must look after your own security and that of your spouse before you divest your assets; (2 ) Income tax implications of exiting the business or altering the farm structure; (3 ) VAT that may be incurred as a result of the transfer; (4 ) The potential Capital Gains Tax liability you may be liable for when you transfer your assets; (5 ) The potential Capital Acquisitions Tax that your successor may be liable for whether the transfer happens during your lifetime (lifetime transfer ) or after your death (inheritance ) and (6 ) Stamp Duty that your successor may be liable for.
Clarke went on to say: "Careful thought needs to be given to what will happen to the farm dwelling house as how this is treated could affect your eligibility for Agricultural Relief. If the house is transferred with the land and you retain a right of residence, it qualifies as an agricultural asset which means Agricultural Relief can be claimed. However, if you retain an exclusive right of residence, this could mean Agricultural Relief will not apply.
"Another important consideration is the Fair Deal Nursing Home Scheme. Under this scheme, 7.5% of the value of the farm must be set aside annually to fund nursing home fees. A change in the treatment of family farms and businesses has been proposed which, if enacted, will introduce a three-year cap on contributions taken by the State to fund care costs provided that a family successor continues to operate the farm or business for six years.
"Ifac’s research found that one in five respondents have identified a successor but not yet formalised their succession plan. Keep in mind that having a vague idea in your head, without documenting it, is lining up problems for yourself and your successor. Overall, an overwhelming majority of respondents do not have a formal succession plan, suggesting there is much to do to secure the future of Irish farming. Now is the time to get started on your plan."