21 December 2017
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Tax & Succession Planning
by Patrick Kearney, Partner

Thankfully 2017 has been a better year for farming businesses and as a consequence there has been a welcome improvement in farm incomes and profits. Unfortunately for many, the improvement has only been an exercise in balancing the books from the very poor year that was 2016. Due to the large fall in farming profits for 2016 there was a subsequent fall in income tax liabilities and by in large the 2017 preliminary income tax that was paid last month was based on these lower liabilities. However, 2017 will see greater income tax liabilities and knowing the demand for continued reinvestment in farming (or any other business for that matter), I would advise all business owners to have their 2017 accounts prepared and their income tax liabilities calculated as early as possible in 2018. This will ensure that you can effectively plan payment of both your actual 2017 income tax liability and your preliminary income tax for 2018. It will ensure that you incorporate these income tax liabilities into your cash flow projections for 2018. It will also ensure that you don’t arrive at October 2018 with sizeable income tax liabilities and no funds to pay same.

One of the thorny subjects that I encounter from one year to the next is succession and estate planning. Unfortunately, even though we consider ourselves as a nation that loves to talk, we become monosyllabic when it comes to discussing how we are going to distribute our assets. This applies across every business sector, but it definitely is the bigger elephant in the room amongst farming businesses. As an advisor I feel the biggest barrier to tackling this topic is that people do not discuss or communicate openly what they are thinking, be it, between spouses, adult children or other next of kin. It is on everyone’s to do list but really nobody wants to upset the perceived hornet’s nest, for whatever reason.

Firstly, I would urge that people use the Christmas period, with family members being home and everyone having that extra time to talk, to kickstart the discussion, to use the time to understand what your next of kin are planning and how that, may or may not fit with your thinking on your plans for the family business or other assets in general. It may not seem an ideal time to tackle the issues, but I feel that everyone is best served discussing this sensitive matter face to face, plus, once everyone returns to the hustle and bustle of their daily routine, this important discussion ends up on the “never to do list”.

Secondly, I would urge anyone that is considering distributing their estate to seek tax advice before you commit pen to paper and complete a will or distribute any assets. For me, effective tax planning is vital, as it would mean that you avoid the unknown and the potential for unplanned tax liabilities, both for yourself and the beneficiary. In relation to one particular tax, it is important to clarify, that while the latest Finance Bill changed the rate of stamp duty on non-residential property transactions from 2% to 6%, thankfully wisdom prevailed and the Minister allowed for consanguinity relief to apply for inter family transfers of farm land. This means that transfers of land between family members will only be subject to stamp duty at a fixed rate of 1%. The aim of the tax advice that you will receive will be to ensure that you are availing of all the relevant tax reliefs, that you are aware and plan for any tax liabilities and that you are compliant in filing your relevant tax returns with the Revenue Commissioners, concerning the distribution.

Thirdly, once you have decided on how you wish your estate to be distributed and you know what taxes may or may not be payable on same by you or the beneficiaries, I would advise that you have a will drafted and completed. This will ensure that your assets are distributed as you wished, because, if you die without making a will, you are said to die intestate and this will mean that your assets are distributed in accordance with the rules set out in the Succession Act, 1965.

Ultimately the decision on how you distribute your assets is your decision, but for me a lot of concerns and fears are diminished by talking and communicating with all those involved. There is a greater potential for lasting disputes to emerge amongst your next of kin if you do not correctly plan the division of your estate before you die. There is also the potential for greater taxes liabilities if you do not effectively tax plan the distribution of your estate and for that reason you should engage with your Tax Advisors as early in the process as possible.

Wishing you and yours a happy Christmas and a peaceful New Year.