Preparing to Step Back: Essential Steps for Farmers
From the day you step forward, you should be planning to step back. Hugh MacEneaney reminds us that early planning is the key to ensuring both a secure retirement and the continued success of the family farm.
Have you considered how your farm will look like in the future? Planning is a crucial phase for farmers in Ireland, who often face unique challenges given the nature of farming as a family business. Proper preparation ensures financial security and a smooth transition of farm assets to the next generation.
Several key steps can help farmers prepare effectively for retirement, focusing on asset transfer, pensions, and state support schemes such as the Fair Deal.
Planning Asset Transfer
One of the most important considerations for retiring farmers is the transfer of farm assets. Typically, farmers want to pass their land and business on to children or other family members to maintain the farm’s legacy. Early and clear communication within the family is vital to avoid disputes and ensure all parties understand the process.
In recent years, farmers are considering collaborative arrangements like partnerships and share farming if the successor isn’t in a position to farm or where the asset owner wishes to continue farming at a less involved level. Farmers should consult with agricultural advisors, accountants, and solicitors to arrange appropriate legal mechanisms for asset transfer, such as wills, trusts, or farm partnerships.
Utilizing the “asset transfer” approach while the farmer is still alive can also have tax benefits, reducing inheritance tax liabilities through mechanisms like Retirement & Agricultural Relief, which offers significant relief if conditions are met. Transferring assets gradually can also help younger farmers gain experience managing the farm before full ownership is passed on.
There is a succession planning advice grant which covers a maximum of 50% of the costs of professional advice to a ceiling of €3,000 to help with the transfer process.
Pension Planning
Traditionally, many Irish farmers did not have formal pension plans and relied on farm assets as their retirement income. However, given rising costs and longer life expectancy, formal pension planning is increasingly important.
Farmers and their partners should explore options such as:
- The State Pension (Contributory or Non-Contributory)
- Private pension schemes like Personal Retirement Savings Accounts (PRSAs) or Self-Employed Retirement Schemes
Contributing regularly to a pension can provide a steady income stream in retirement, reducing dependence on farm income. It’s advisable to start pension contributions as early as possible, but even those close to retirement can benefit from seeking financial advice.
With the increased cost of living, the state pension may not be sufficient to meet all the desires of retirees. Therefore, an additional source of income may be required. This may be achieved through a farm income payment or leasing some land in order to fill the gap.
The Fair Deal Scheme
The Fair Deal Scheme, formally known as the Nursing Homes Support Scheme, provides state support to help cover the cost of long-term care in nursing homes. Many farmers may need to consider this scheme as they age, especially if health deteriorates. It is means-tested, considering income and assets, including farm property.
Farmers need to understand how entering the Fair Deal Scheme might affect their farm assets. While the family home and farm may be included in the means test, certain protections exist, particularly if the farm remains in the family’s possession. Early financial planning can help mitigate the impact of these costs.
The Fair Deal Scheme puts a charge of 7.5% on assets for a period of 3 years, and it also takes 80% of one’s pension to pay towards nursing home fees. This may be less depending on the cost of nursing home care and the duration of one’s stay. The average time a resident remains in care is about 2.5 years.
Advice should be sought before applying for the Fair Deal Scheme.
Example
The Fair Deal looks back at assets 5 years prior to applying for the scheme.
For assets worth €1 million, under the Fair Deal Scheme, they would be charged at 7.5% = €75,000 per annum.
Three-year cap rule applies: 3 × €75,000 = €225,000 would be charged against the estate.
In Summary
- Plan early for smooth farm asset transfer using wills, trusts, or partnerships, with tax relief and professional advice support.
- Establish formal pension plans alongside the State Pension to ensure stable retirement income beyond farm assets.
- Understand the Fair Deal Scheme’s impact on assets and nursing home costs; seek early financial advice to protect the farm legacy.