1. Farming Law & Tax Update 2017
19 January 2017
Kieran Coughlan

2. Disclaimer
Obtain relevant professional advice (legal and taxation) relevant to your own circumstances
The following is intended as a guide and does not construe advice in relation to any circumstance
The accompanying information is not to be regarded as comprehensive in dealing with all relevant taxes
No liability is accepted to any party as result of any action or inaction as a result of the use or misuse of the following information
The following information is copyright to Coughlan Accounting & Taxation Services and may not be reproduced, circulated or shared with others without prior written consent © 2017

3. Background
Kieran Coughlan, Coughlan Accounting & Taxation Services Limited,

4. Order of business
Part 1 Tax changes for 2016 / a farmers perspective
Part 2 Succession farm partnerships
Part 3 Farm Company incorporation – an option?
Part 4 Planning the transfer of the family farm
Part 5 Practical tax planning

5. Tax changes for 2016 / 2017 Income tax USC PRSI Capital Gains Tax
Gift Tax
Stamp Duty

6. Income tax changes 2016 / 2017
Increase in Self-Employed tax credit to €950 per annum
Commenced from €550, n/a to those with PAYE tax credit
TAX PLANNING: - Consider farming in partnership with spouse
- PRSI benefits
- Additional tax band
- Reduced USC
Increase in home carer credit to €1,100
2015: €810, 2016 €1,000, 2017 €1,100
Income limits increased to €7,200
TAX PLANNING: - Second spouse working versus stay at home parent/carer
- Part time employment hugely efficient – 2ndry PRSI benefits
+/- Carers allowance
- Utilise in conjunction with Childcare Services Relief

7. Income tax changes 2016/2017 Energy efficient equipment
Extension of 100% tax relief (accelerated allowances) to individuals
Lighting, motors and drives, heating and electricity, refrigeration and cooling etc
Minimum spending typically €1,000
TAX PLANNING: - Spec’ing up new equipment & buildings fitout
- Separate invoicing in respect of qualifying elements

8. Income tax changes 2016 / 2017 Income averaging
Origins Finance Act 1981
Reformed as part of Agri-Taxation Review
Assessable farm profits averaged over 3 years changing to average over 5 years
Extension to 5 years should reduce deviation of tax liability – consistent tax bills
Suitability with volatility??
Broadening of relief to farmers with ancillary income from activities carried on the land
Extension to 5 years has major disadvantage – doubling of potential claw back period from 2 years to 4 years
FA2016 new relief allowing farmers step out of averaging for one year

9. Income tax changes 2016 / 2017 Income Averaging TAX PLANNING:
Evaluate is income averaging actually saving tax over longer term
Optimum time to exit averaging w.a.v minimsing clawbacks
Planning cessation to trade to avoid clawback
Using opt-out for year 2016 or future years
Alternatives – pay as you go prelim
Company incorporation

10. Income tax 2016 / 2017
New Succession Farm Partnerships

11. USC 2016 / 2017 Significant reductions in rates 2015 Rate 2016 2017
€12,012
1.5% 1%
0.5%
€5,564
3.5%
€6,656 3%
€6,760
2.5%
€52,468 7%
€51,376
5.5%
€51,272 5%
Balance 8%

12. PRSI 2016 / 2017 Increases in certain social welfare rates
Paternity benefit introduced
Extension of invalidity pension to self-employed
Dental, Optical and Aural benefits extended to self-employed + dependent spouse/partner/co-habitant
Farm Assist income disregards restored from March 2017 – off farm income assessed at 70% to pre 2013 levels
Tapered PRSI Class A rates now from €352 to €424
TAX PLANNING:
Maintaining PRSI record
Applying for relevant benefits

13. Capital Gains Tax
Entrepreneur Relief - reduced rate of CGT of 20% in the case of a disposal of chargeable business assets made by an individual on or after 1 January 2016 up to a lifetime limit of €1m.
TAX PLANNING
Retirement Relief vrs Entrepreneur Relief

14. New Entrepreneur Relief
Capital Gains Tax
Retirement Relief
New Entrepreneur Relief
Complete relief from CGT
Cap of €750k / €500k
No Cap re children if < 66 else 3m
Lifetime limit
>55 age
Owned assets for 10 years
Used assets for 10 years of ownership
Available for land which has been leased out (retired farmer)
20% CGT
Cap of €1m
Lifetime limit
No age restriction
3 year ownership
Not available for land rented out
Wider scope that RR – “business” rather than trade & profession

15. Capital Gains Tax TAX PLANNING
If RR not available consider Entrepreneur Relief
If RR restricted consider Entrepreneur Relief for excess

16. Capital Gains Tax
Retirement Relief (RR)– 31/12/2016 end of transition which allowed land owners convert from con-acre to lease arrangements
RR can continue to apply to land which is let where:
Owner over 55
Owned land and worked land for > 10 years prior to first letting
Sale or transfer within 25 years
In the case of sale or transfer to 3rd party, new rules insist land must be let for periods of not less than 5 years
TAX PLANNING:
For those ceasing to farm - engage in leasing to keep options open
Leasing for successive periods

17. Capital Gains Tax Retirement Relief Leased land - TAX PLANNING:
For those ceasing to farm - engage in leasing to keep options open
Leasing for successive periods
Strict interpretation – each letting for at least 5 years
Sale or transfer within lease term?

18. Capital Gains Tax
Restructuring relief extended from 01/01/2015 to 31/12/2018

19. Gift & Inheritance tax (CAT)
Restriction of Dwelling house exemption
Inheritances
Donor must have occupied house as only/main residence at date of death
Beneficiary lived in house for 3 years pre inheritance
Beneficiary not entitled to any other dwelling house
Must continue to occupy for 6 years subsequent
Gifts to dependent relatives
Donor need not have occupied house as PPR
Dependent relative – over 65 or permanently and totally incapacitated

20. Gift & Inheritance tax (CAT)
Restriction of Dwelling house exemption
Tax Planning
Incorporate dwelling house exemption into Will planning while children are young

21. Gifts & Inheritance Tax (CAT)
Agricultural Relief post 01/01/2015
Farmer = a) > 80% Agricultural assets &
b) i)farms land > 50% time or
ii) trained farmer or
iii) leases land for 6 years to i) or ii)
Restriction in relation to farm houses
TAX PLANNING
- Consider Business Relief as alternative

22. Gift & Inheritance tax (CAT)
Restriction of Dwelling house exemption
Inheritances
Donor must have occupied house as only/main residence at date of death
Beneficiary lived in house for 3 years pre inheritance
Beneficiary not entitled to any other dwelling house
Must continue to occupy for 6 years subsequent
Gifts to dependent relatives
Donor need not have occupied house as PPR
Dependent relative – over 65 or permanently and totally incapacitated

23. Stamp Duty Young Trained Farmers Exemption extended to 31/12/2018
Consanguinity Relief - from 01/01/2016;
Applicable only to land
Transferor < 67
Must either farm land > 6 years or
Lease land for more than 6 years
If farming must either be trained or > 50% of N.W. time

24. Part 2

25. Succession Farm Partnerships
Introduction of new Succession Farm Partnerships
(EU State Aid Approval Granted, pending admin arrangements)
Transfer 80% to successor within 3 to 10 years
Income tax credit worth up to €25,000 – no credit payable where successor over 40 in year of assessment
Credits split according to partnership profits
Stock relief 50%
Disadvantages
Formal registration with business plan
Potential for clawback
Non compatible with incorporation
Time frame for Stamp Duty Relief

26. Succession Farm Partnerships
More Detail:
Existing farmer, at least 3 ha (owned or leased), > 2 years preceding partnership
Successor entitled to at least 20% profits
Partnership agreement
details of the farm assets of partnership
conditions to which the transfer or sale will be subject,
the year in which the transfer or sale will take place,
any other terms which the successor and farmer agree to, including any terms in relation to the farm assets, the conduct of the farming trade or the creation of any rights of residence in dwellings on the farm land.

27. Succession Farm Partnerships
TAX PLANNING:
Is this a viable option? Are parties ready to enter a formal agreement?
Alternatives – “regular” partnerships, company incorporation, family wages etc.
Look at medium term – how will business have changed over medium term
Flexibility within agreement – sell or transfer, timing,
Ultimate option to default on agreement
Coincide with stock relief & stamp duty relief (special care consanguinity relief > 67)
Special care – will other reliefs be available at the nominated point of transfer?

28. Part 3

29. Farm Incorporation Advantages Disadvantages 12,5% Rate Directors loan
Enhanced pension options
PRSI benefits
Limited liabiltiy
Stability of personal taxation – management of volatiltiy
Disadvantages
Higher level of compliance
CRO reporting
Company profits remain such
Higher rate of CT to passive income
PRSI costs
Future succession becomes more complicated
“Costs” of incorporation

30. Taxation move towards incorporation
Lease land exemption 3rd parties
Extension of new Agricultural Relief rules
Farm restructuring relief

31. Farm incorporation First Stage - Assess viability
Current profits and expected future profits
Capital allowances remaining
…expected income tax position thereon
Evaluate level of drawings and expected future drawings
Profits versus drawings
...capacity of company to accumulate profits
= potential tax savings from incorporation

32. Farm incorporation Second stage – costs of incorporating
Direct costs i) company incorporation fee
ii) professional fees;
Accountant
Tax Consultant
Agricultural Consultant
Legal fees (will)
Auctioneers fee – valuations / lease
Hidden costs - tax clawbacks
i) Income averaging
ii) Agricultural Relief
iii) Balancing charges
iv) Banking charges
v) Insurance costs
Future costs
i) Loss of stamp duty relief
ii) Double charge to CGT
iii) Non-availability of certain reliefs

33. Farm incorporation
Third stage – tax planning for incorporation and for succession
Avoiding or minimising tax clawbacks, avoiding pitfalls
Maximising directors loans tax efficiently
Tax planning for Wills
Develop scenarios for tax efficient succession
Land
Land + Company
Company only
Non-succession options

34. Farm incorporation Fourth stage Company incorporation
Banking facilities
Registration for taxes
Department of Agriculture – BPS / Herd Number
Notification of suppliers and customers, milk supplier
Lease agreement
Transfer of machinery
Updating of insurance
Milk production shares

35. Farm incorporation
Fifth stage
Recap along the way

37. Planning the transfer of family farm
DEAD
ALIVE
No stamp duty
No CGT
Young trained farmer relief
Half rate (consanguinity) relief
Retirement relief
Entrepreneur relef

38. Planning the transfer of family farm
DEAD
ALIVE
Inheritance Tax (CAT)
Agricultural Relief
Business Relief
Gift tax (CAT)
Agricultural Relief
Business Relief

39. Planning the transfer of family farm
DEAD
ALIVE
Practical disadvantages
Fair Deal Scheme
Stale blood
Ability to claim Ag-Relief may be compromised (asset test)
Ability to claim Business Relief may be compromised
Potential restriction of tax relief regime
Disputes & disputed wills
Probate
Practical disadvantages
CAT, CGT and SD to negotiate
Assoc. potential for clawbacks
Making provisions for transferors
Marital breakdown
Dual legal representation
Releasing control

40. Tax Planning pre & post death
Availing of existing reliefs
Small gift exemption
Will planning
Post
Available Reliefs
Specific bequests & disclaimers
Deeds of family arrangement
Discretionary Trusts
Section 72 policy

41. Almost the worst time to engage in tax planning…

43. Planned approach Identify successor
Identify preferred timing of transfer
CONSIDER DISCUSSING PLANS WITH SUCCESSOR & OTHERS
Assess availability of tax reliefs at expected timing of transfer
Contingency planning (will in the case of lifetime transfer)
Contingency planning (alternative successor in the case of eventualities)
Contingency planning (restriction of tax reliefs)
Provisions to protect you & protect farm

44. Wills Designing Will to avoid disputes – legal right share
Spouse / Civil Partner / Co-habitants
Valid wills & Intestacy
Talk
Letter of wishes

45. Will Planning – Legal Right Share
*Married & Civil Partners equivalent
Valid Will
Intestacy / Invalid Will
Married (no children / grandchildren)
50%
100%
Married (+ children / grandchildren)
33%
67%
Co-habitant 0%

46. Will Planning – Legal Right Share
Valid Will
Intestacy / Invalid Will
Children (parents spouse deceased) **
100%
Children (parents spouse alive
33%
**Children no automatic right – can contest in the case they have not be adequately provided for

47. Separated – same as spouse
Extinguished if included as term of separation agreement
Extinguished by divorce

48. Will Planning - Owing assets jointly
Understand how joint ownership can affect will planning
Joint tenants – owed jointly, passes to joint owner – outside the scope of a will
Tenants in common – owned jointly, ability to alternative successor

49. Tax Planning Examples

50. Practical Example 1: Dwelling house exemption
Scenario: Husband & Wife, 1 child 1 PPR €500,000, 2 Rentals €250,000 each
Life assurance covers mortgage
Opportunity for children to benefit from Dwelling House Exemption
Preserving thresholds
Legal right share - Right to family home in satisfaction of benefit

51. Example 1 - Outcome With dwelling house exemption
Without dwelling house exemption
Total inheritance by child (now & future) €1,000,000
Taxable inheritance €1,000,000
Lifetime exemption (€310,000)
Net balance subject to tax
€690,000
Taxable at 33% €227,700
Total inheritance by child (now & future) €1,000,000
Dwelling house exemption
(€500,000)
Taxable inheritance €500,000
Lifetime exemption (€310,000)
Net balance subject to tax
€190,000
Taxable at 33% €63,333

52. Practical Example 2: Agricultural Relief
Parents, farm land & farm house €500,000, Cash €150,000, shares €25,000,
Transfer all assets to child on death

53. Example 2 – Agricultural Relief
No Agricultural Relief
With tax planning (3 methods)
Total inheritance by child €675,000
Taxable inheritance €675,000
Lifetime exemption (€310,000)
Net balance subject to tax
€365,000
Taxable at 33% €120,450
Total inheritance by child €675,000
Agricultural Relief 90%
Taxable inheritance €67,500
Lifetime exemption (€310,000)
Net balance subject to tax
Nil
Taxable at 33% Nil

54. Practical Example 3: Timing of transfers
Parents 3 houses €250,000 each, cash €400,000, 2 children
Intention gift house to each child first, gift cash later

55. Example 3 – Timing of transfers
House first, cash after
With tax planning (3 methods)
House to child €250,000 Capital gains tax payable say €40,000 Net gift taken by child €210,000 Tax due now Nil Cash €200,000 Excess over threshold €100,000 Taxable at 33% €33,000
Cash to child €200,000
Net gift taken by child €200,000
Tax due now Nil
House sold to child €250,000
CGT payable €40,000
Excess over threshold €100,000
Taxable at 33% €33,000
Offset of CGT (€40,000)

56. Practical Example 4: Newly formed company
Assets owned
Directors loan €400,000 (from sale of stock, machinery and entitlements)
Dwelling house and farm €1,200,000
Company worth Nil
Assets transferred equally to 2 children

57. Example 4 – Newly Formed Company
Transfer of assets equally to children
With tax planning
Agricultural Relief not applicable Business Relief not applicable Net gift taken by child €800,000 Excess over threshold €490,000 Taxable at 33% €161,700 Each
1) Splitting of assets
2) Trust
3) Application toward agri-assets
Net gift taken by child €800,000
Agricultural relief 90%
Excess over threshold Nil
Taxable at 33% Nil

58. Practical Example 5: Transfer of farm to nephew
Assets owned
Farm land €1,200,000
Nephew owns house €400,000
Residue of estate to niece
Nephew separated & No agricultural relief

59. Example 5 – Transfer of farm to nephew
With tax planning
Agricultural Relief not applicable Business Relief not applicable Taxable inheritance €1,200,000 Excess over threshold €1,170,000 Taxable at 33% €386,100 + Exposure to future settlements
Business Relief €38,610
Alternative to protect
Life interest to Nephew + remainder to grand nephew

60. Practical Example 6: Retirement relief + Leasing
Farmer over 55, 3 parcels
Lease outside parcel 40 acres to rent near home
Preserving RR

61. Example 6 – Retirement Relief + leasing
Conacre
Leasing + tax planning
Rental income taxable
Rental payments, an expense
Sale of outside block taxable
Purchase of new block liable to stamp duty
Rental income exempt
Rental payments, an expense
Sale of outside block exempt
Gift to child w.a.v. purchasing land
YTF exemption

62. Thanks for your attention