While every succession planning process will look different, one of the first steps is always to identify your successor – and, importantly, the type you have.
Willing successor
Having a willing successor is the most straightforward type. This is someone who is willing and able to take on the farm. Now is the time to work out what you need to do to prepare for succession, what the timeline will be, and how to structure the transfer in a way that is most advantageous for you, your successor and the farm.
Reluctant successor
There can be many reasons why a successor is reluctant to take over. For example, our survey found 15% believe there is no interest from the next generation and a further 25% struggle with the viability of their farm business. If your successor is reluctant to take over, it is important to understand the reason why. Sitting down together in a formal meeting facilitated by your accountant can be a good way to tease out concerns. Usually, once everyone is willing to engage constructively in this process and seek appropriate advice, solutions will be identified. For example, leasing may be an option for a successor who does not want to forego a career elsewhere in order to work on the farm. Entering into collaborative arrangements, diversification, and changing business structure are other potential solutions to consider.
Examples of reasons why a successor might be reluctant
They are only taking over the farm out of a sense of duty, but their real interest lies elsewhere.
They are worried about the financial impact on themselves and their family if the farm is not viable.
The timeline in the Succession Plan does not sit well with other commitments.
They are worried that they will have to cope with an unfair burden, care, costs and/or family disharmony.
They are worried that other family members have unrealistic expectations for the future of the farm based on emotional rather than sound business reasons.
More than one successor
Sometimes there may be more than one successor. In this situation, it will be important to establish whether the farm can support more than one livelihood. If the answer is ‘yes’, choosing the right business structure is important – for example, you might decide to enter a Succession Partnership. If the answer is ‘no’, you will need to look at making alternative arrangements. Your age and the ages of your successors will have to be taken into account when deciding on timelines, as this is critical from a tax planning point of view.
"With two sons playing a future role in the business, it’s been important to start the planning process early. Both Joseph and Michael are heavily involved in all aspects of decision-making on the farm and play a crucial role in financial management and farm production."
-Joseph Dunphy
Successor not yet identified
There can be various reasons why a successor is not yet identified, ranging from reluctance on the part of a farmer who is not ready to give up their livelihood to delayed decision-making or having a successor being too young to take over. Sometimes it may not be possible to identify a willing successor in the immediate family. Options such as partnership, leasing, share farming or transferring the business to a niece or nephew may need to be on the table for discussion in these situations. As every situation is different, it is a good idea to ask your accountant to review your situation and outline the most appropriate succession options for your business.
Skipping a generation
Where sons or daughters are not interested in farming, skipping a generation will sometimes be an option, however, it is vital to seek advice early in this situation as there are a lot of different factors to consider. For example, it will be important to allow enough time in your Succession Plan for your grandchild to gain experience working on the farm and qualify as a Young Trained Farmer. With various options for Agricultural Relief and Capital Acquisitions Tax, it is advised to contact your accountant early to ensure you get the most effective plan in place.
What we can’t plan for
There can be situations that arise which cannot be planned for, such as sudden deaths. While you cannot foresee these situations, you can have safeguards in place to ensure you and your family’s wishes are carried out. Starting the succession planning process early and maintaining an up-to-date will can be invaluable should something unexpected happen.
"We were fortunate to have been farming in a partnership and already had some key plans in place, such as a will.
These steps are crucial should the unexpected happen, as did when Dad passed away suddenly."
-Imeda Kinsella
Looking to get your plan in place? There’s a grant for that!
The Succession Planning grant was introduced in 2023 to support farmers aged 60 years and above to get their succession planning process started. The grant covers up to 50% of vouched, legal, accounting and advisory costs, excluding VAT, to the value of €1,500.
No matter what type of successor you have, planning is critical. 46% of farmers do not have a clear Succession Plan in place. Unless you document your plan and make a valid Will, you are lining up problems for yourself and your successor. If you are not sure where to start, you can download our Farm Succession Guide or contact your local ifac office for assistance.
When There Is No Successor
If you do not have a successor willing to take over the farm, you will need to consider alternative options. These may include delaying the transfer until after your death (transfer by Will) or looking at options that allow you to take a step back from day-to-day management of the farm such as partnership, selling up, leasing, or share farming.
Partnership
This can be an excellent arrangement within a family and/or with non-family members. It can keep younger and older generations involved in the farm while facilitating the orderly transfer of a business over time. There can also be good tax reasons to contemplate a partnership. These include access to enhanced stock relief (50% as opposed to the standard 25%) for partners in registered farm partnerships and 100% stock relief for young-trained farmers who are partners. This is particularly significant where stock numbers are increasing.
Additional tax relief is available for farm partnerships that qualify as a Succession Farm Partnership. This incentive takes the form of a tax credit of up to €5,000 per annum for up to five years, allocated on a profit-sharing ratio between partners. The conditions to qualify include a requirement to transfer 80% of the farm assets to your chosen successor within a specified time period.
When entering a partnership, it is important to be aware that disputes can arise and partnerships can break down. A written partnership agreement is essential and should include a dispute resolution mechanism that you can rely on if problems arise at a later stage.
This needs to include provisions for unexpected events, such as if a partner dies unexpectedly or if you decide to split jointly owned lands into individual partners’ names at a future date.
Wills also need to be updated to reflect the change in your business structure.
Selling your farm
Where there is no successor, you may wish to sell your farm as you approach retirement. It is important to be aware that Capital Gains Tax of 33% is chargeable on the sale of land in Ireland; however, farmers selling land may be able to reduce their bill if they qualify for certain reliefs.
For example, depending on your age, you might be able to avail of Retirement Relief which could potentially eliminate your Capital Gains Tax liability. If you don’t qualify for Retirement Relief, you might be able to claim Entrepreneur Relief which reduces the Capital Gains Tax rate to 10%. There is a lifetime limit of €1 million on the gains that you can claim for this relief. Entrepreneur relief does not apply to investments or development land.
Leasing land
Leasing could be an interim solution if you have not yet identified a successor. Provided you structure this correctly, you may be able to claim income tax relief on the lease income. To qualify, your land must be in Ireland and it cannot be leased to a close relative. The person that you lease the land to must use the land to carry on a farming trade. Leasing can also be an option when you gift property to someone or transfer it to them as an inheritance after your death.
If this person leases the property to someone who farms it on a commercial basis for at least six years, they may qualify for Agricultural Relief. The lessee must also either have an agricultural qualification or farm the agricultural property for at least 50 percent of their normal working hours.
Share farming
As mentioned previously, share farming can be an option for a farmer who wants to take a step back from the day- to-day management or who needs an interim solution until a successor can be identified. In these arrangements, each party makes separate contributions, keeps their own accounts and calculates their own profits as a separate and independent business.
There are complex legal and tax issues to consider when selling land, entering a partnership or other collaborative arrangements, or leasing land. It is essential to take appropriate advice before entering negotiations or making any decisions. Contact your local ifac office for assistance.
This article was first published in our 2024 Irish Farm Report.
