Collaborative Farming and Succession – A Guide to Transferring the Family Farm

Ruth Fennell

In the context of succession, collaborative farming arrangements provide options to farmers of all enterprises, in two ways. Firstly, as the interim step before full transfer of the farm to a son or daughter and secondly, it gives the option of collaboration with another farmer through partnership, share farming, contract rearing, land leasing or cow leasing. In simple terms, farmer collaboration is where two or more farmers come together in an arrangement that is of benefit to all those involved. Details of information on collaborative farming arrangements can be found on the Teagasc website. This paper will outline the main characteristics of each of the collaborative arrangements.

Registered Farm Partnerships

Transferring the family farm to the next generation can be a difficult process with many questions and concerns that need to be addressed. It is often complex and therefore needs early and careful planning.

A registered farm partnership maybe the first step to consider as part of this planning process. In many cases, parents are not yet in a position to transfer the farm to a son or daughter that has returned home after completing their agricultural education.

There are genuine reasons for this, and they are often based around concerns such as: family farm income, security for the parents and other family members who still have to be provided for. These concerns can be alleviated by forming a registered farm partnership between the parents and the son or daughter as an interim step before considering full succession. There are very strong advantages to forming a partnership for both the parents and the young son or daughter.

Benefits to parents

In a registered farm partnership, the parents are not giving up control of the farm; they are sharing it with their son or daughter. They retain ownership of assets such as land, buildings, quotas and entitlements. These assets are licensed to the partnership for use. Assets such as stock and machinery are transferred to the partnership and as a result, they become partnership assets.

This structure gives security and reassurance to parents that they are not handing over the farm through a partnership. A partnership gives the parents the opportunity to see how their son or daughter will get on, while working on the farm with a level of control and input into management decisions. It also allows the parents to have a ‘guiding hand’ and share their experience and knowledge with their future successor. A profit sharing ratio is agreed between the parents and the son or daughter. It is entirely up to the family to decide what is equitable and fair in their own situation. To qualify to form a Registered Farm Partnership as a Category 2 (trained farmer) the trained farmer must have a minimum of a 20% profit share.

At the beginning of the partnership arrangement, the parents generally receive the larger share of the profits to meet with family and financial commitments. As the years go on, this changes by agreement in favour of the son or daughter as they assume more control and take on more responsibility for the farming business.

Benefits to the Young Farmer

Being a partner in an arrangement where daily duties and management is shared between the parents and a son or daughter is of great benefit to the next generation in the development of their farming career.

The key benefit of partnership to the son or daughter is that they have an input into decision making and the management of the farm. This allows them to put the knowledge and experience that they have gained from their agricultural education into practice on the home farm. It allows them to express themselves and show their ability to their parents. It also increases their confidence and farming ability and gives them experience of running the farm as a business.

It helps to make the connection between the work that goes on outside with the strategic and financial management of the farm. Responsibilities are shared on an agreed basis through the on-farm agreement and a profit share for both the parents and the son or daughter is also agreed as above. This ensures that both parties have a vested interest in the farm business.

Benefits to the Partnership Business

When two or more people come together in a partnership, they each bring a set of skills and knowledge base with them. This means that there is often a better and broader range of knowledge and skills available to the partnership business. These can include husbandry skills, financial management skills, computer skills, machinery expertise, farm buildings expertise amongst others. It generates an ability to make better and more informed decisions on a wider range of subject areas.

Discussion among partners often generates better decision making as ideas are teased out and explored between the parties. In a family situation the partnership can provide the platform to blend the experience of the parents with the youthful enthusiasm and modern thinking of the future successor. This will be of great benefit to the younger farmer when they takeover full responsibility for the farm on their own as there will not be a sudden change in management with the consequent pressure that responsibility can bring.

Incentives for the Formation of Registered Farm Partnerships

There are a number of incentives in place to encourage families to consider partnerships as an interim step to full transfer. These are related to grant schemes, the EU CAP Payment Scheme and taxation benefits.

On-Farm Investment Schemes

Under the present on-farm investment schemes, registered farm partnerships may receive a number of benefits. They may qualify for a doubling of the grant investment ceiling in a partnership where there are two or more partners. A young trained farmer who is less than five years farming and under forty years of age with the required level 6 in agricultural education may qualify for a 60% grant in the current on-farm investment scheme.

EU Direct Payment Support Schemes

CAP 2023-2027 continues to support generational renewal with additional payments for young people entering farming. The new payments will be on a per hectare basis, up to a maximum of 50 ha. The payment will almost triple the previous payments under the Young Farmer Scheme. Registered Farm Partnerships are also eligible for this scheme.

Taxation Benefits

Stock relief is a pre-tax adjustment to farm profits and can be of great value where stock numbers are increasing on the farm. It is a relief on the rise in stock values between the opening and closing inventories and is subject to an overall limit of €70,000. The current normal rate for farmers is 25% (Limit of €100,000 over a four-year period with a maximum of €40,000 in any one year).

Young trained farmers are eligible for 100% stock relief in the first four years after initial set up. In addition to this, enhanced stock relief may be claimed by the other partners on the same share as the profit sharing ratio, in a registered farm partnership at the rate of 50% (Limited to €20,000 over a three year period).

If a son or daughter comes home and works on the home farm as an employee, they cannot avail of stock relief unless they set up on their own.

Where a family goes into a registered farm partnership, the profit is split between the parents and the son or daughter. This can result in a net tax gain for the family as it maximises the income declared at the lower rate of tax. Both the parents and the son or daughter make separate tax returns and therefore the tax limits apply separately. Due to the profit share with the son or daughter, the parents declaring as much profit in the high tax bracket.

Partnerships Outside of Families

Two or more farmers can combine their respective farming operations into one through a registered farm partnership. There are many benefits to doing this. Farming in partnership with another farmer can greatly improve lifestyle by freeing up time for family. It may also help to generate the ability to achieve greater scale. The improvement in lifestyle and the ability to achieve scale comes about through the combining of management, land, labour, facilities, stock, machinery and capital.

With two full-time farmers working together, there is a saving on labour as there are two people to share the workload and when one partner needs to take time off the other partner is there to keep the farming operation running. The sharing of the workload is done by agreement between the partners in the partnership. There is also a saving in labour through the amalgamation of farming operations. This cuts out the duplication of work on two similar farms. Combining the land areas of the two farming operations through the partnership may increase the grazing platform for stock or land area for cropping and thereby facilitate expansion. Existing facilities can be utilised by the new farming venture. Where facilities are adequate, there may be no need for additional facilities. Where additional facilities are required, they may be either solely or jointly funded depending on the preference of the partners involved.

Requirements for Successful Partnerships

In order for partnerships to work effectively, both parties must clearly understand and be committed to the concept of partnerships. The arrangement must be to the benefit of all the parties involved. There cannot be one dominant partner who makes all the decisions. Both parties must have an input into the management of the farm on a daily basis. That is the essence of a good partnership. To achieve this, a lot of preparation work is required by the potential partners and it is during this period that they get to know one another and trust begins to build as they decide that a partnership is what they want. Trust builds continually even after the partnership begins in the way that each partner conducts themselves. Both parties must be willing to work side by side on a daily and weekly basis.

In preparing to form a partnership or any other collaborative arrangement, the bulk of the discussion will be between the parties involved. However, the process will also require the input of outside help in the form of professionals. The first person to engage with may be your Teagasc advisor or consultant to discuss the issues in relation to your current business, the potential for the partnership and areas such as the impact on scheme payments. Following on from that, each party involved will need to talk with their respective accountants and solicitors. All of these professional people will play a vital role in the bringing together and the formation of the partnership. But, this process must be driven by the farmers themselves and at a pace that they are happy to progress it at.

Forming a Farm Partnership

Here are five steps to help you form and maintain a sound legal agreement:

1. Your accountant will need to register the partnership with Revenue using the TR1 form and make an annual report to Revenue using the FIRMS 1 form. This is an important but relatively straightforward process. It is generally advised that partnerships should begin in-line with the end of the previous tax year. That means if the previous tax year ended on the 31^st of December, the partnership should begin on the following 1^st of January.
2. The accountant must create a capital account for each partner in the partnership where the initial capital contribution (value of livestock, machinery and cash) of each partner is recorded and updated on a yearly basis. This is the mechanism that can be used to dissolve the partnership, if needs be. Without it, there may be no record of the capital invested first day or over time and this is when the problems start with poorly constructed partnerships.
3. While template agreements are available from Teagasc they are only templates. Legal advice must be sought from a solicitor to tailor the template agreement to suit the particular circumstances in any situation. This may include the addition of clauses in some situations and the removal of clauses in others.
4. Once the written agreement is completed and signed, it needs to be kept up to date. Any change to the original circumstances on which the agreement was signed requires an amendment in the written agreement. For example, in a partnership where the profit-share has been changed over the time. The written agreement must be amended each year to reflect this.
5. Ask yourself, what difference will the partnership make to the day to day work on the farm? To answer this, you should complete the template “On-farm Agreement” to cover the day to day practicalities.

There are three key areas to this document:

• Roles/Responsibilities/Record Keeping/Decision making
• Structure the labour input/weekends off/holidays
• Profit Share/Salaries/monthly drawings

Succession Farm Partnerships

Succession farm partnerships are an income tax incentive under Section 667D of the Taxes Consolidation Act 1997 to encourage Farmers to transfer the farm business to their identified farming Successor (s) in a planned way. This incentive has received EU state aid approval and can be availed of since 2017 and subsequent income tax years. It applies only to partnerships that are registered on the register of succession farm partnerships maintained by the Department of Agriculture, Food and the Marine (DAFM).

The incentive at the time of compilation of this paper (September 2026) is in the form of an annual income tax credit of €5,000 for up to five years of the partnership, subject to a max age of 40. The credit is split annually based on the profit sharing ratio of the partnership between the Farmer and the Successor. The credit can be offset against off-farm income.

The key criteria to be met to qualify for the income tax credit are as follows:

1. Make a valid application to be placed on the register of succession farm partnerships maintained by the Department of Agriculture, Food and the Marine.
2. At least one partner in the Succession Farm Partnership must be a natural person who has farmed at least 3 hectares in his/her own right for the two previous years. This person is defined as the “Farmer”.
3. Aside from the Farmer at 2 above, the other partner(s) must be a young trained Farmer who is in receipt of 20% of the partnership profits. This Partner is defined as the “Successor”. The income tax credit cannot be claimed in any year where the Successor reaches 40 years of age at the beginning of the tax assessment year.
4. The Teagasc My Farm My Plan Booklet must be completed for the partnership. Teagasc is the certification body for this farm plan.
5. A legally binding agreement (adapted to the needs of the parties), separate to the farm partnership agreement must be signed by the “Farmer” and “Successor” who are partners in the same registered farm partnership.
6. The succession agreement must specify the year of transfer and outline the assets to be transferred. The agreement must clearly identify the lands which will be transferred on the transfer date. The year of transfer must be after year 3 and before the end of year 10 of registering with the DAFM to claim the tax credit and a minimum of 80% of the farm assets outlined in the agreement must be transferred.

The Teagasc website contains an example of a specimen template legal agreement for a Succession Farm Partnership. It also includes a practical example of a typical farm transfer situation such as may meet the needs of the income tax incentive.

Moving from an Existing Registered Farm Partnership

Partnerships that are already in existence and registered with the DAFM Partnership Registration Office may also opt to register as a Succession Farm Partnership. The partners must submit to the Departments’ Farm Partnership Registration Office the following: A completed Teagasc My Farm My Plan business planning booklet; a legally binding Succession Agreement; A completed Succession Farm Partnership Application Form; the Successor’s Birth Certificate and evidence of satisfactory agricultural educational qualification of the Successor.

The main partnership agreement may need to be amended to reflect changes made by the Farmer and the Successor when signing up to the Succession Agreement. In any case the main partnership agreement must be updated to ensure it is kept up-to-date and current at all times during the lifetime of the Succession Farm Partnership. The Partnership Registration Office must be informed within 21 days of any changes and amended and updated documents furnished to them.

Limited Companies

Farmers who are farming through a limited company are not eligible to form a Succession Farm Partnership. Both the Farmer and Successor must be natural persons.

Registration Procedure

The succession farm partnership must apply for entry on to the Succession Farm Partnership Register by completing the appropriate application form. The application form must be accompanied by the following documents:

• A Farm Partnership Agreement & On-Farm Agreement
• Evidence of land ownership (Folios) or possession (Lease)
• Evidence of appropriate Agricultural Education level completed.
• Teagasc certificate for the My Farm My Plan Booklet.
• Legally binding Succession Agreement
• Birth Certificates as evidence that “Successor” is under 40 year of age at time of application

Clawback

A clawback of the amount of tax credits claimed will apply where the farm assets do not transfer as specified in the Succession Agreement.

Contract Dairy Heifer Rearing

If a dairy farmer wishes to retire from dairy farming, contract rearing of dairy heifers can provide an ideal opportunity to use the skills of rearing replacement dairy heifers in collaboration with another dairy farmer. It may also provide an opportunity for drystock farmers to get involved in a complimentary or an alternative enterprise with the potential for increased profit.

For contract rearing to be successful, it is critical that the rearer gets paid adequately to cover direct costs and make a margin on the enterprise to cover their land, labour and management. The advantages to the rearer are that cash flow is more favourable as payment is generally paid by direct debit on a monthly basis. Another advantage to the rearer is that there is no money tied up in stock, as ownership does not transfer to the rearer. Essentially the rearing period can be broken down into five stages:

• Calf Rearing
• First Grazing Season
• First Winter
• Second Grazing Season
• Second Winter

The various rearing periods need to be borne in mind when calculating and agreeing a rate of payment between the parties. Rearing the calves to twelve weeks of age and keeping the animals over the winter periods are the most expensive rearing stages in terms of cost and they also require a high labour input. The grazing seasons are by far the least expensive and require less labour. In setting up these arrangements the parties need to agree the start date and finish of the term of rearing. If this is to be extended, then the payment rate needs to be increased, especially where this leads further into the second winter when the heifers are approaching eighty per cent of maturity. Each party should draw up a budget to plan their own finances.

A recording system should be used to monitor costs as the year goes on. This can be done very simply by using a written system or through computers using programmes such as the Teagasc Cost Control Planner. Agreement must be reached at the start on which costs are to be incurred by each party. This will determine the rate of payment per head per day.

The priority for the rearer is to cover costs and get adequately paid for his or her labour, but this comes with responsibilities. The heifers must reach their target weights at housing after the first grazing season, at mating and approaching calving after the second grazing season.

Achieving these weight targets along with getting the heifers in calf are the dairy farmers’ priority. The rearer also needs to be aware of the age spread and the average starting weight for the group of heifers and have realistic expectations for weight gain during the rearing period. Regular weighing of heifers is a recommended practice to monitor the progress of the group during the agreed rearing period. For those that are signed up to ICBF Herdplus, they can link the dairy herd owner and contract rearer so that weights can be recorded by the rearer and viewed by the owner. They can also be included in the dairy farmer’s sire advice report. This helps to monitor weight performance and aid management.

Table 1: Target weights for Replacement Heifers at different stages during the 24 month rearing period based on their maintenance sub index figures

Good communication and trust are essential to the success of contract rearing or any other collaborative arrangement. The parties involved should be in regular contact to discuss the progress of the heifers and make key decisions on issues such as breeding and health.

Share Farming

The key distinguishing feature of share farming from a partnership is that two completely separate farming businesses operate on one area of land. The concept remains the same across all enterprises.

In a share farming agreement, the farm produce (grain, beef or milk) is sold and each person gets an agreed proportion of the sale proceeds. In addition to this, each person in the agreement pays a proportion of the variable costs such as feed, fertiliser, veterinary. Some of the fixed costs may also be divided such as machinery running.

For all the people involved, the starting point for this venture is a financial budget to cover potential income and expenditure from the enterprise. The share farmer generally provides the labour and in many cases the machinery. The land owner provides the land and the facilities required for the enterprise to be carried out.

The current Irish share farming model was developed to accommodate share farming in tillage and beef enterprises. It is growing in popularity in the tillage sector where it gives security to both the landowner and the share farmer. Since the abolition of milk quotas, a share farming model has been developed for dairy farming.

Benefits to Landowners

Share farming provides an opportunity for older farmers who want to continue farming and do not want to retire. They may or may not have family or a successor to the farm. Through share farming, they can enter into an arrangement with a younger person to share the workload, income and costs of production. It is an opportunity for the landowner to get involved in a business arrangement with a young motivated person who will bring attributes that can include new skills, a strong work ethic, modern technology and a desire to develop a profitable enterprise. This comes about as share farming by its nature, means that both parties have a vested interest. Therefore, in this type of arrangement the physical and financial performance of the farm increases rather than winds down.

Benefits to Share Farmers

Share farming opens up the agricultural industry to new talented people who choose to have a career in farming. For the share farmer, this type of arrangement provides a career opportunity or a ladder of entry into farming. It allows a young person to build their own independent business and with the potential to grow their own income from farming. It provides an opportunity to reward ability and efficiency. This provides motivation to the share farmer and will benefit both parties in a successful agreement. When compared to being an employee on a farm, share farming is more tax efficient as the share farmer can benefit from the various income tax measures.

Template agreements for Registered Farm Partnerships, cow leasing, share farming and contract cropping are available to download from the Collaborative Farming Section of the Teagasc website.

Long Term Land Leasing

A land lease is a written legal agreement between a lessor (landowner) and lessee (active farmer). For a lease to be a certified legal agreement, it must be signed by all parties. Signatures on the lease must be witnessed by an independent person(s) and in order to avail of the enhanced income tax incentives, the Lease must be stamped by Revenue.

The lease sets out the obligations of the parties involved during the period of the lease and so provides useful legal protection to everyone concerned. All land leases must be registered by the lessee with the Property Services Regulatory Authority. This process can be completed by the lessee or by a solicitor or auctioneer. There is no charge on registering the lease.

Land leasing is one of the most common collaborative arrangements in Ireland and would be considered more hands off for the landowner than other arrangements. It allows the landowner to scale back or retire from farming while receiving an income in a tax efficient way while the land is still actively farmed by the lessee.

The Ministers for Agriculture and Finance introduced strong tax incentives to encourage long–term land leasing (at least 5 years). These measures were strengthened in the 2015 Budget and Finance Bill as follows:

• Increased tax-free thresholds
• Removal of 1 % stamp duty (still applies for leases over 5 years but < 6 years)
• Confirmation that both the annual rent and the Basic payment entitlement value can be rolled together
• Limited companies can now qualify the lessor for the tax incentives
• Removal of the 40 year age limit
• Land may be leased for up to 25 years.

The key benefit to the lessor is that the income received from a long-term land lease and the value of any Basic Income Support for Sustainability (BISS) Entitlements is tax free income subject to the limits set out in table 2. In cases where the land is jointly owned, these figures can be doubled. As part of the 2024 budget, a new requirement was included to the eligibility for tax relief on land lease income. A lessor who has purchased farmland at market value on or after 1 January 2024 now must have owned the land for a period of at least 7 years before they can make a claim for income tax relief on the rental income received. This took effect for contracts to purchase land entered from the 1^st of January 2024.

Another key benefit of land leasing is that the lessor can qualify for retirement relief on capital gains tax if they transfer the land to a family member or sell on the open market. This is a very valuable relief to farmers and other landowners when transferring land. By entering into a long-term land leasing arrangement with the lessee, the landowners are providing a better incentive to the lessee to make investments in the land such as reseeding, fencing, and possibly infrastructure.

The key benefit to the lessee is that the long-term lease provides security of tenure. The extended term of lease allowable under the new provisions mean that the lessee can look at investment in the land in a new light. It may be easier to justify any investment carried out with a long-term lease, which can be up to 25 years.

A condition of the Land Lease Income Exemption is that a qualifying lessee cannot be connected to the lessor or with any of the lessors if there is more than one. The regulations outline those relationships that are deemed as “connected”. In relation to the treatment of leased land and the drawing down of BISS payment entitlements, it should be noted that BISS payment entitlements may be subject to change under future CAP reviews or agreements. Before signing any lease agreement, it is important that all parties seek legal advice from a solicitor.

Table 2: The maximum income tax relief reduction allowed each year depending on the duration of the lease

The above is Chapter four from A Guide to Transferring the Family Farm. This booklet provides essential information on taxes, legal issues, collaborative farming options, pensions and education issues relating to farm transfer.

Download a copy of A Guide to Transferring the Family Farm