Are you considering handing over the farm? and if so, is there a dwelling on this farm?
If yes, you have big decisions to make.
While undertaking a recent valuation, I was reminded of an article that Martin O’Sullivan wrote
in the Farming Independent on this topic.
Do you stay in your home or hand that on too? It’s not a simple decision, and there are many tax
and care implications to consider.
This is the dilemma often faced by farmers when handing over the family farm. Do they hold
onto it, or do they transfer subject to a right of residency and is this to be a simple right of
residency or an exclusive right of residency.
We are currently in the process of preparing the valuation of a farm with a home on it, careful
consideration is being given to how the overall transaction will be handled for all parties.
Now with all these matters it is essential to take independent professional advice from your
solicitor, accountant or tax advisor as the consequences are far reaching.
Specific matters for consideration are: the future security needs of the transferor – their solicitor
may view tax and fair deal eligibility considerations as secondary. A solicitor has the
responsibility of looking after their client’s best interests. Not the transferees, they have their
own independent legal advice.
The transferor’s solicitor will have future concerns for the security of the roof over his client’s
head and will argue for ownership to be retained while the transferees will be focused on the
possible tax and care costs that may arise down the line.
The following typically come to the fore:
How best to accommodate the parents future housing and care needs
The Possible future tax implications for the successor if the house is to remain in the
ownership of the parents and inherited by the successor when the parents are passed
Possible future care costs arising from the house being assessed as means for the person
requiring care under the Fair Deal Scheme.
Who pays the maintenance costs relating to the house?
There are three options for the house:
This leaves the owner in total control of the property, this give the assurance that they cannot be
put out of their home or have it sold out from under them. As we often see in farm valuations, the
reality is that many farm houses are in or beside the farm yard and realistically could never be
sold as a standalone entity and could never be occupied by anybody other than the farmer’s
In addition, outright ownership may mean that maintenance, insurance, property tax etc. have to
be borne by the parents — these can be significant costs – building insurance has risen
significantly in recent years.
From successor’s perspective, the value of the house when they inherit it will not qualify for
Agricultural Relief and could result in a significant tax liability — which would not have arisen
if the house had been transferred with the farm in the first place.
And a further negative of retaining ownership is that the value of the house will be included in
the means assessment for the Fair Deal Scheme if the need should arise.
Fair deal is now only assessed for three years and most farm houses will not have a significant
value, particularly those in or beside the farm yard, this will mitigate some of this future
2. Simple right of residence
Where the house is transferred, a simple right of residence can be charged on the title. This is
where the transferor — presumably the parent(s) — has a right to live in it for as long as they
live or as long as they want to retain such a right.
In such cases the transferee, assuming he /she intends to farm the land, will qualify for
Agricultural Relief on the house subject to the usual conditions.
In the case of an ordinary right of residence, other people could in theory also live in the house if
your transferee so chose.
3. Exclusive right of residence
A more secure option where the house is transferred with the land is an exclusive right of
residence where nobody else can live in it without the occupant’s permission.
From a tax perspective, this is treated differently because an exclusive right is regarded by
Revenue as a fife interest.
The net effect is that the house is not assessed for inheritance tax until the life interest holder
passes on. It may be subject to inheritance on its market value at that stage.
However, if it satisfies the definition of a farmhouse at the date of the gift and at the date the life
interest expires, arguably it could be regarded as an agricultural asset and may qualify for
Agricultural Relief if such relief is necessary.
There is no ‘one size fits all’ when deciding whether to retain ownership of a house when
transferring the family farm in cases where it is intended to leave the home to the farm successor.
The various tax reliefs and incentives towards farm succession ensure that most farm transfers
are not liable to gift or inheritance tax and once the transfer is effected, the parent(s) can breathe
easily that the tax man won’t have any slice of the action.
This may not be the case if ownership of the house is retained as the tax man is still in the mix
and may have a final say in matters. So it is essential that independent professional legal and
financial planning is undertaken by both the transferor and the transferee.
The information in this article is only to be used as a guide. Mannix Property Services advises all
parties to seek professional advice from your accountant, solicitor or tax advisor before
embarking on any transfer, it is too big a decision to leave to chance.
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Brendan Mannix on Friday, March 3, 2023 in blog