Joint Herd Number structures have become increasingly common in the last few years. One of the factors driving this trend is that when Young Trained Farmers are added to a herd number, they become eligible for YTF Top-Ups of up to €8,000 per year for up to five years.
However, in order to claim these Top-Ups, the farmer and YTF must have a joint bank account into which the Top-Up is paid. They must also make a written declaration, witnessed by a solicitor, stating that the YTF has a significant level of control on the farm and is farming.
Tax implications
Creating a Joint Herd Number structure has potential tax consequences affecting Income Tax, Capital Acquisitions Tax and Capital Gains Tax. The impact differs depending on whether or not a partnership is in place between the herd owner and the YTF.
From an income tax perspective, the YTF is a joint owner of the herd number, which means 50% of the herd income must be declared in their name. If a partnership has been created, under rules set down in the 1890 Partnership Act, the entire farm income must be divided and split 50:50 unless there is a formal partnership agreement in place that says otherwise.
From a Capital Acquisitions Tax (‘gift tax’) perspective, if there is a partnership structure in place and if the herd owner licenses the entitlements to the partnership, then there is no CAT liability. However, if there is no partnership in place, then the YTF in a Joint Herd structure has effectively received a gift of entitlements, and if this ‘gift’ exceeds the allowable tax-free threshold, then the YTF will be liable for CAT.
From the herd owner’s perspective, if there isn’t a partnership in place with the YTF, creating a Joint Herd Number structure effectively means the herd owner is disposing of 50% of their entitlements to the YTF. This potentially creates a Capital Gains Tax liability for the herd owner. However, if a partnership has been created and a partnership agreement is in place, the herd owner can licence the entitlements to the partnership.
Marty Murphy, our Head of Tax said:
“Setting up a Joint Herd Number structure is a significant business decision. Always seek professional advice, as it is important to ensure you understand the potential partnership and tax implications for both yourself and the YTF. Contact your local ifac office in the first instance”.