Farm Partnerships & Tax
There are tax advantages to establishing farm partnerships particularly if the intention is to give a young farmer a share in the partnership. Here are some of the key things to consider when setting up a farm partnership.
A registered farm partnership (“RFP”), where 2 or more farmers come together to combine their farming operations into one business allows the partners to benefit from enhanced stock relief. To obtain these benefits the Partnership must be registered on the Register of Farm Partnerships maintained by the Department of Agriculture, Food and the Marine (DAFM).
Aside from certain excluded farm assets, all partners are required to contribute all of their farm land, entitlement to agricultural payments, livestock and farming machinery to the partnership and may not have an interest in any such agricultural assets outside of the partnership.
Where trading stock is transferred to the partnership other by sale or for valuable consideration the transfer will generally be at market value for tax purposes at the cessation of his or her sole trade. The election must be made in writing for the specified return date for the year of assessment for which the livestock is transferred (i.e. 31 October 2017 for tax year 2016 or the extended November 2017 deadline if filing via ROS).
All farmers are allowed a relief of 25% on the increase in value of trading stock and work-in-progress at the end of the accounting period over and above the opening value. However, RFP partners, are allowed stock relief at the rate of 50%. The amount of stock relief which may be claimed by a partner over each 3-year period is subject to an aggregate cap of €15,000 over 3 years.
A qualifying young farmer, who is a partner in a Registered Farm Partnership, is entitled to stock relief at the rate of 100% for four years instead of the usual 50% deduction, beginning in the year in which the individual begins farming. The cash equivalent amount of stock relief at the 100% rate which a young trained farmer can receive will be limited to €40,000 in a single year of assessment and €70,000 in aggregate over the four years of the scheme. Thereafter, the rate drops to the 50% rate annually while trading in a Registered Farm Partnership.
The RFP is deemed to have commenced on the date on which the activity is first carried on by two or more persons in partnership. In the first year the farmer is taxed on the profits of the trade from commencement to the following 31 December. In the second year the farmer is taxed on the profits for the twelve-month period from the commencement date.
Where the farmer was previously taxed under the income averaging rules the new partnership trade is treated as a continuation of the old farming trade, but only for the purposes of the income averaging scheme.