Land
M bility
D
MOBILITY
CE
The Land Mobility Service
RVI
A Guide to
SE
THE L
AN
Working Towards
a Shared Future
Land Mobility :: 01
Background
International Experience
Farming and food represent Ireland’s
largest indigenous industry with a very
significant economic contribution to the
country. The Food Harvest 2020 Vision is
to further enhance this contribution
through efficient, environmentally
sustainable production growth. Global
food demand continues to grow while at
the same time the two most basic
resources for food production, land and
water are in decline. It is critical that we
make the best use of available land. It is in
this context that new land use models and
land mobility come into consideration.
Land mobility has always been an issue,
only 6% of farmers are under 35 and
26% are over 65. This age imbalance is
compounded by the fact that many older
farmers do not have a farming successor.
There have been numerous studies
identifying the issues, these include:
• Farming successor not identified
• Late transfer carrying from one
generation to the next
• Uncertainty over available options and
impact for CAP payments
• Desire for the land to be farmed but
wanting to stay involved or keep family
involvement
• Desire to enhance the farm for future
generations but not able to do it
themselves
• Security of income and property rights
• Lack of information and advice
In New Zealand the shared milking model
accounts for 34% of dairy farming
operations, the concept has evolved over
time and is governed by legislation to
protect the rights of the participants.
Equity partnerships are also common and
work well in New Zealand, however these
partnerships are legally constituted as
companies and are often more an
investment vehicle than a farming
partnership.
Joint farming is popular in Norway
accounting for 20% of dairy farmers.
Long term leasing and succession
planning is very prominent in France and
is actively encouraged through local
arrangements, security of tenure, and
young farmer supports. Partnership
arrangements receive favourable state
treatment and have evolved to cater for
various circumstances and arrangements,
allowing for numerous partners, active
and non active partners, transferability of
share, limited liability and outside
investment. The GAEC is a very popular
arrangement in France, under which each
partner is a farmer in his/her own right.
Contract farming and long term tenant
arrangements are common in the UK.
In the USA and Canada share cropping
is widely practiced as are various forms
of partnership.
Terminology can vary between
different countries so the arrangement
type covered by a particular term can
differ significantly between countries.
In Ireland Conacre is very much the
dominant arrangement and is without
doubt the least efficient for farm
development, tax efficiency, and
farm progression.
Average farm size in Ireland is 32
Hectares, fragmentation is common, and
the amount of land changing hands
through sale or purchase each year is tiny.
Collaborative arrangements can be the key
to delivering Food Harvest 2020.
02 :: Land Mobility
What is The Land
Mobility Service
The Land Mobility Brokerage
Service, based in the Farm Centre, is
not about more studies but instead
providing a service to facilitate
workable arrangements. The
fundamentals of the service are:
• To provide information
• To outline and explore options
• To act as an honest broker
• To provide a confidential service
facilitating land mobility
• To work with farmers’ existing
professional advisers
The “Honest Broker” element is
particularly important in that all
parties will be fully respected and
in particular the rights of the land
owner.
The purpose of the service is to
facilitate collaborative
arrangements tailored to suit any
specific situation. These
arrangements may be as simple or
as complex as desired. They must
be workable for all parties involved
and can be within or outside the
family or a combination of both.
In many cases it is envisaged that
the arrangements will evolve over
time, to help develop dynamic,
progressive, and profitable farm
operations.
Advantages of
Collaboration
Collaboration has a long tradition in rural
Ireland, just look at co ops and
neighbours helping each other at the
harvest. Collaboration provides both
social and financial benefits. Identified
benefits of collaboration include:
• Improved economies of scale leading to
increased profits
• Increased leisure time
• Better social and family life
• Improved work environment and
reduced work load
• Reduced stress through shared
decisions and companionship
• Improved farm safety
• Reduced investment risk and better
decision making
• More efficient use of fixed costs
• Operational farms have higher
economic, social and environmental
value
• Improved use of skills and
specialisations
• Expansion, succession planning, and
farm progression facilitated
Land Mobility :: 03
In spite of the benefits and the availability
of both templates and working examples
the level of collaborative arrangements
operating in Ireland is low. This can be
attributed to CAP reform and uncertainty
associated with Single Farm Payment
(SFP) entitlements, a lack of information
and awareness, and land title security
concerns.
Structured collaborative arrangements are
a relatively new concept in Ireland and
have a lot to offer.
What is required from
an Arrangement
To be workable an arrangement
must deliver (to all parties)
• Income security and enhancement
• Title security
• The land to be farmed
• Continued family involvement
• Farm development and adding
value to the farm
• Quality of life and social benefits
• Tax efficiency
Types of Arrangement
Long Term Leasing
Medium and long term leasing
arrangements offer many advantages:
1. Long term leasing is very tax efficient,
landowners can lease out their land to
an unconnected person for a period of
ten years and qualify for an income tax
exemption on the rental income of up to
€20,000 per annum.
2. The land owner can still qualify for CGT
relief on any subsequent transferring.
3. The land owner can retain some land for
his/her own farming.
4. The tenant has time and security to
maximise returns from the land and
implement improvements
2. Share Farming – this is where each party
is still a farmer in his/her own right. It is
very suited to the tillage sector, a typical
arrangement would have the land owner
supplying the land (and some inputs and
possibly labour) with the shared farmer
supplying labour, inputs, and machinery.
Risk and management is shared. The
concept also has possibilities for milk and
drystock. Provided the arrangement is
operated correctly there are no negative
tax or SFP implications.
Having a Share Farming Agreement
demonstrating division of resources can
be very useful for SFP compliance.
3. Shared Milking – this is Share Farming in
a dairy context. The possibilities and
opportunities for dairy shared farming
will increase post quota.
4. Cow Leasing – this represents a way a
getting into livestock without the high
initial outlay.
Teagasc have developed templates and
models for a number of collaborative
arrangements.
The type of arrangements outlined above
can be an end in themselves or work well as
an initial get to know each other agreement
or as part of pre succession within a family.
The logical progression may be to a
partnership or a corporate arrangement.
Limitations of long term leases include
1. Rental income tax relief is not available
within the family or to a company, even
as part of a succession arrangement.
2. Stock disposals prior to leasing can
have tax implications.
3. A tenant’s ability to finance
improvements or expansion may be
limited.
Collaborative Farming
Collaboration and shared farming can be
as simple or as complex as you want as
long as the terms are clear and agreed.
The types of arrangements available
under this heading include
1. Contract Rearing – a simple type
arrangement while at the same time
providing income certainty to the land
owner and allows him/her to continue
to farm. Allows an expanding operator
to subcontract part of his/her operation.
There are no negative tax or SFP
implications.
Land Mobility :: 05
“
Partnership is an excellent
arrangement within a family,
keeping both the younger and
older generations involved with
no negative tax or SFP
implications
Partnerships
Partnership is an excellent arrangement
within a family, keeping both the younger
and older generations involved with no
negative tax or SFP implications. New
entrants may be required to own land to
qualify for SFP top ups.
Partnerships can also work well outside
the family, the Irish models are based on
the French GAEC. The best known Irish
model, The Milk Production Partnership,
complies with milk quota regulations
however this model provides a template
for any farm partnership.
Registered partnerships can be tax
efficient with individual reliefs allowable
and capable of being carried in (e.g. stock
relief, income averaging and unused
capital allowances). Revenue and the
Dept. of Agriculture have a favourable
approach towards registered farm
06 :: Land Mobility
partnerships. The key being that each
farmer in the arrangement should be
treated no less favourably than a farmer
farming on his/her own. All qualifying
farmers in a registered partnership are
each treated as individuals for tax and
SFP. Stated government policy is that all
parties are treated separately for EU and
government support.
Partnerships are capable of dealing
with a wide range of scenarios and
multiple partners, including companies.
To safeguard land title, land is licensed by
the land owner for use by the partnership
and a clear cessation mechanism can be
provided for in the agreement.
Partnership offers an ideal mechanism
for dairy expansion post quota, for
example a dairy farmer and non dairy
farmer neighbour. In simple terms the
dairy farmer can provide the milking
facilities and dairy expertise with the
neighbour providing the extra land and
labour for expansion.
Partnerships, as agreements can be
customised to differing needs offering
versatility and flexibility provided a
proper planning process is followed.
Properly formulated partnerships have
proven very successful in Ireland, key to
this is:
1. Define the activities to be included in
(and excluded from) the partnership
2. Specify the parties to the partnership
3. Define roles, responsibilities and limits
4. Define profit sharing ratios
5. Specify duration and dissolution
mechanism
6. Detail resources and capital being
provided by all parties
7. Establishing bank accounts and herd
number
8. Detail how accounts are to be prepared
and the make up of the capital account
The planning process is very important.
The business must be separated from the
partner’s private lives. It is advisable to
have a clear comprehensive agreement.
A specimen partnership agreement has
been developed by Teagasc in
conjunction with the Law Society.
Revenue have taxation booklets for Milk
Production Partnerships.
These planning steps would also apply
to establishing a company. Partnerships
have a number of advantages over the
company structure namely:
• Each partner has an equal say
• Dissolution can be defined and simple
• More favourable tax treatment of stock
relief, unused capital allowances,
income averaging, or VAT coming into
the partnership. Revenue treat each
partner separately
• Each partner is a farmer in his/her own
right
• Partnerships are more compatible with
the family farm concept than would be
the case for a corporate structure
Land Mobility :: 07
Corporate Structure
Company formation tends to be tax and
investment driven rather than
collaboration.
Corporate arrangements can however
offer a lot of possibilities. A company is
an entity in itself, this can provide great
operational flexibility and scope but can
also act as a constraint.
Corporate arrangements may be
confined to two collaborators or
numerous interested parties and families.
For example a dairy farmer can lease his
land and milk quota to a company, a non
dairy farmer can lease in his land, a partly
retired farmer can lease his land and
swap in his stock for shares, and another
party can offer finance for shares and so
on. There is nothing to prevent a group of
parties like these coming together to
form a company and organising between
them how it is run. The company concept
can be applied to any farm enterprise(s).
Farmers best positioned to benefit
from incorporation tend to be paying
high levels of income tax, have moderate
drawings and have operational scale.
Forming a company can be particularly
beneficial as a vehicle for expansion and
development, but can also be used as a
vehicle for collaboration.
“
A company can be used as
a vehicle for collaboration
and expansion
The main constraints associated with
company formation are:
• The company becomes the farmer
irrespective of the number of farmers
within the company
• Dissolution, if required, can be costly
and problematic
• Taking money out of the company can
give rise to significant income tax
• While audited accounts may not be
required there are still company law
and filing compliance requirements
The key benefits of company formation
include:
• Shareholding reflects input
• Shareholders decide how the business
is to be run and who has responsibility
for what
• Land can be included or not
• Children and/or grandchildren can have
a shareholding
• CGT, CAT, and Stamp Duty reliefs still
apply
• SFP can be sold, leased or transferred to
the company
• Companies pay corporation tax on
company profits at 12.5%, they do not
pay PRSI or USC
• Sale of stock and machinery to the
company at the onset can be tax
efficient
• Income can be salary, rent, fees or a mix
• The company carries out its own
investment and can borrow in its own
right
• An excellent vehicle to develop scale
and efficiencies
• Limited liability
• Your shareholding is transferable and
grows with the company
Shareholders, employees and company
stakeholders/directors are liable for
income tax on any income or earnings
received from the company. Changing
your farm from your current status to a
company will require cessation of income
averaging (if previously availed of) and
stock relief can’t be availed of in the last
year of your current status.
Lifetime Transfer
Lifetime transfers can be stand
alone or following an alternative
arrangement period (eg
partnership, shared farming, or
other). Any lifetime transfer
should be as a result of
succession and tax planning.
Interim Arrangements
The scenarios outlined are not
exclusive with other types of
arrangements also possible,
including short term “get to know
each other” arrangements.
A young farmer going in as an
employee or farm manager can
work as an interim arrangement.
Land Mobility :: 09
• CGT relief applies when the proceeds from
a land sale are reinvested for the purpose of
farm consolidation, this relief also applies to
land swops. The initial contract must be
• Young trained farmers qualify for 100%
entered into before 31 December 2015.
Stock Relief, this can also apply within a
• No CGT applies on the disposal of your
partnership or share farming arrangement.
principal private residence.
• Young trained farmers qualify for 0%
• The sale of SFP entitlement is subject to
Stamp Duty on land acquired through sale
CGT. Retirement relief applies if it is
or gift.
transferred with the relating land.
• The qualifying age for the state pension is
• Land owners over 40 are exempt from
66 and will move to 68. Persons born
income tax on lease income on medium
between 1 Jan 1949 and 31 Dec 1954
and long term land leased to individuals
qualify at age 66, persons born between 1
who are not connected to them as
Jan 1955 and 31 Dec 1960 qualify at age
defined by Revenue, lease period 10
67, and persons born after 1 Jan 1961
years or more up to €20,000 exempt
qualify at age 68.
income per year, 7 to 10 years up to
• For a spouse to qualify for the contributory
€15,000, 5 to 7 years up to €12,000.
state pension in their own right they must
Joint owners can qualify for double
have paid PRSI contributions.
exemption.
• Everyone aged 70 or over is entitled to a
• Land owners who enter long term leases
Medical or GP Visit Card. It is a Medical Card
can still qualify for CGT Retirement Relief
where individual gross weekly income is
(under the 15 plus 10 year rule and as
€600 or less (€1,200 for a couple).
advised in Budget 2014).
• CAT applies to gifts and inheritances and is • Budget 2014 promised a review of
paid by the receiver. If Agricultural or
farmer taxes, this review is expected to
Business Relief applies the market value of
be positive towards collaborative
an agricultural or business property may be
arrangements.
reduced by 90%. In addition tax free
• Low income farmers may qualify for Farm
exemptions apply depending upon
Assist.
relationship between receiver and giver.
• The Installation Aid Scheme for young
• CGT applies when a person disposes
farmers is not presently operating. The
property (land, buildings, or company shares)
scheme was suspended in October 2008
and is paid by the disposer. Retirement Relief
but could be part of the new CAP in
applies if the disposer is a farmer and aged
2015.
over 55. This relief should mean no CGT on
• The EU Early Retirement Scheme is not
transfers within the family and up to
presently operating.
€750,000 in sales proceeds without CGT. An • New entrants to farming may qualify
upper limit of €3m applies to retirement
for special SFP supports and milk
relief when the disposer is aged over 66
quota.
years. If the disposer is aged 55 to 66 no
upper limit applies.
Relevant Tax, Pension and
Support Schemes
Information
10 :: Land Mobility
Fees
The Land Mobility Service is
being supported initially by
FBD Trust and other stake
holders, however for it to
be sustainable in the longer
term a fee mechanism will
apply.
Brokering an arrangement:
Brokerage fee TBC
Annual review fee:
€ 250 per party
Initially the service will be
focused on three pilot areas to show that a
dedicated service can deliver workable
arrangements. These pilot areas are North
Kilkenny, Roscommon and the Muskerry
areas of Cork. Inquiries from outside these
areas will also be taken with a web based
contact service available.
Teagasc are providing ongoing research
and support for farm collaboration.
Specimen agreements and support are
available from the Teagasc website and
Teagasc offices nationwide.
The principal medium and longer term
ambitions of the service are:
1. To demonstrate that a dedicated service
can deliver successful working
arrangements.
2. To expand the service beyond the pilot
areas.
3. To demonstrate that the service is
important to the delivery of Food
Harvest 2020 and merits further
support via The Rural Development
Programme, Stakeholders, EU and
Government Incentive Schemes, and
Tax Incentives.
Land Mobility :: 11
Confidentiality and
Privacy Policy
The Land Mobility Service is
committed to respecting the
right to confidentiality of all
land owners, prospective
farmers, and anyone else
interested in the service.
Confidentiality is fundamental
and an absolute necessity. All
information disclosed will be
treated as confidential.
Information provided will only
be used for the purpose of
operating the service and will
only be made available, with
prior permission, to others on a
need to know basis for the
purpose of provision of the
service.
How to avail of the
Service and Plan for
Your Future
Planning for now and the future
starts here, if with total
confidentially and without
commitment you wish to
explore your options please
contact the service
12 :: Land Mobility
RVI
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THE L
A
MOBILITY
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www.landmobility.ie
[email protected]
■ Land Mobility Programme Manager
Austin Finn, 086 2541425
■ The Irish Farm Centre / Macra na Feirme, 01 4268900
■ Your local Teagasc office
This Service is an initiative of Macra na Feirme.
It has industry wide support including those listed below.
The contents of this publication, or any part thereof, may not be copied or used without
the written permission of Macra na Feirme. ©Macra na Feirme 2013.
This publication is an information guide and is based on our understanding of current regulation and practice (October 2013). Should
you wish to pursue any of the suggestions outlined we recommend that you contact us for further information and consult with your
professional advisers. While every effort has been made to ensure accuracy the authors or publishers accepts no responsibility for
errors or omissions, nor for the consequence of any action taken on the basis of the information included in this leaflet.
Macra na Feirme