I intend to transfer 100ac of an outfarm to my son who has completed the Green Cert. It is currently leased, generating a rental income of €15,000 per annum with the lease due to expire at the end of 2026. I will need him to make some financial contribution to me after the land has been transferred as I have no other income apart from the state pension. Is there a sizeable tax bill for him? Is there potential for an increase of income for my son? Any advice is greatly appreciated.

ANSWER: It is good to be planning for your finaancial future. You mention your main source of income is your pension and the rent from the farm.

However, it can be a condition of the transfer that your son would continue to pay back some or all of the rental income to you.

This can be structured as a loan from you to him as part of the farm being transferred and thereafter your son can pay the rent back to you each year tax efficiently in repayment of that loan.

He should be able to avail of income tax relief on the rent provided he leases the land to an active farmer.

This will have to be for a minimum of six years to avail of Consanguinity Relief from stamp duty detailed below.

He might choose to farm the land himself and the equivalent of the market rent or less as agreed can be transferred back to you.

Young Farmer Top Up/National Reserve

Your son would have to actively farm the land for a minimum of five years to claim what’s more commonly referred to as the Young Farmer Top Up.

This typically equates to a top up on your existing entitlements payment of approximately €170 per hectare, up to a maximum of 50 hectares i.e. €8,200 per year for a maximum of five years. If you have low value entitlements or naked land, he could also apply for entitlements under the National Reserve.

Targeted Agricultural Modernisation Scheme (TAMS)

Again your son needs to actively farm for a minimum of five years to avail of the 60% TAMS grant. The Young Farmer Capital Investment Scheme (YCFIS) provides financial aid to young farmers for upgrading farm buildings and equipment. It covers investments in animal housing, manure storage, fencing, dairy equipment etc. There are generally three taxes that can arise from a farm transfer. These include:

Capital Gains Tax: Most transfers are exempt from CGT by availing of Retirement Relief. To qualify for the relief, you as the owner must be at least 55 years of age and have owned and farmed the land for at least 10 years before transfer. You can lease the land for up to 25 years and still avail of Retirement Relief, provided you owned and farmed it for 10 years before you started leasing it. The limit on this relief is €3m where you transfer at 70 years or over.

Gift/Inheritance Tax: A child can be gifted/inherit up to €400,000 tax free from parents. Anything in excess is taxable at 33%. As the average family farm transfer exceeds this value, a child must qualify for either Agricultural Relief or Business Relief to avoid any gift/inheritance tax. For example, if the farm was worth €1m and your son satisfies the conditions for Agricultural Relief, only €100,000 would be taken into account for tax purposes rather than the full €1m. He can set off the €100,000 against his tax free amount of €400,000 meaning that he would have no tax to pay on the farm transfer. He would have €300,000 left of his tax free amount to shelter any future gifts/inheritances from parents.

He does not need the Green Cert or even to farm to qualify for Agricultural Relief, only to lease to an active farmer.

However, if he intends to farm himself he needs either to have the Green Cert and farm to make a profit or if he does not have the Green Cert spend at least 20 hours per week farming. He must also pass the 80% Farmer Test which is a financial test. For example if he is getting €1m worth of land, his non-agricultural assets cannot exceed €250,000.

Stamp duty

Stamp duty is payable on land transferred by deed such as a gift from a parent to child. The current rate of stamp duty on agricultural land is 7.5% of the market value.

If he wants to avail of the 0% rate under Young Trained Farmer Stamp Duty Relief, he will need to farm the land himself for five years from the date of the transfer. Otherwise he can pay the 1% stamp duty and he has the option of continuing to lease the farm and avail of the income tax relief.

Aisling Meehan, agricultural solicitors and tax consultants.

Disclaimer: The information in this article is intended as a guide only. While every care is taken to ensure accuracy of information in this article, Aisling Meehan, Agricultural Solicitors does not accept responsibility for errors or omissions arising. E-mail aisling@agrisolicitors.ie