Martin O’Sullivan: What should you do with your home when you transfer the family farm?

Then it is a question of a simple right of residence or an exclusive right of residence.

These can be quite complex decisions as there can be consequences down the line for both the homeowner and the successor.

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matters for consideration

When it comes to family farm transfers, attorneys generally focus more on the future security needs of the transferor and may prioritize tax and fair deal eligibility considerations.

The solicitor is responsible for protecting the best interests of his client and not those of the acquirer who is being advised independently.

The house can often be a sticking point. While the attorney has concerns about the future security of the roof over his client’s head and may argue that ownership should remain with the parents, the successor’s counsel focuses on the tax and care costs that may arise later.

The problems that typically come to the fore are:

■ What is the best way to address parents’ future safety concerns?

■ The future tax implications for the heir if the home remains in the hands of the parents and is passed on to the heir upon the death of the eldest survivor.

■ Possible future care costs arising from the home being valued as a resource for the dependent person under the Fair Deal scheme.

■ Who pays the maintenance costs around the house?

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There are three options for the house:

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1. Retain full ownership

This means that the owner retains full control of the property. They can be assured that they cannot be evicted from their home or that it will be sold among them.

But the reality is that many farmhouses stand on or off the farm and could realistically never be sold as a self-contained unit and never be occupied by anyone other than the farmer’s family.

In addition, full ownership can mean that maintenance, insurance, property taxes, etc. have to be borne by the owner – these can be significant costs.

From the farm successor’s perspective, when he eventually inherits the home, the value of the home will not qualify for agricultural relief and could result in a significant tax liability – which would not have arisen if the home was transferred with the farm in the first instance would have been place.

Another disadvantage of retention of title is that the value of the home is included in the means test for the fair deal program, if necessary.

However, it is only valued for three years and most farmhouses are of no significant value, especially those on or around the farm.

A typical farmhouse valued at €150,000 is estimated at €11,250 per year so the maximum additional maintenance costs would be €33,750 over the eligible three year period.

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2. Simple right of residence

When the apartment is handed over, a simple right of residence can be credited to the title. Here the transferor – presumably the parent(s) – has the right to live in it as long as he lives or as long as he wishes to keep such a right.

In such cases, the acquirer, assuming that he intends to farm the land, is entitled to agricultural relief for the house under the usual conditions.

In the case of a proper right of residence, other people could theoretically also live in the house if your transferee wishes this.

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3. Exclusive Right of Residence

A safer option, where the house is transferred with the property, is exclusive occupancy, where no one can live in it without the occupant’s consent.

From a tax point of view, this is treated differently, as an exclusive right is considered by the tax office to be a lien.

The net effect is that the home is not assessed for estate tax until the life shareholder dies. The market value can be inherited at this point.

However, if it meets the definition of a farmhouse at the time of gift and life interest expiry date, it could arguably be considered an agricultural asset and be eligible for agricultural relief if such relief is required.

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summary

There is no one-size-fits-all formula for deciding whether ownership of a house should be retained upon transfer of the family farm when the intention is to leave the house to the farmer’s successor.

The various tax breaks and farm succession incentives ensure that most farm transfers are not subject to gift or inheritance tax, and once the transfer is made parents can breathe easy knowing that the steersman has no part in the lawsuit.

This may not be the case if ownership of the home is retained as the tax officer is still in play and may have the final say in matters.

Martin O’Sullivan is the author of the ACA Farmers’ Handbook and is an agricultural business and accountant based in Carrick-on-Suir; www.som.ie