Why it is important to plan for the future

Posted 17/02/2015

Farming is all about people: looking after the land, for generations to come.  Farming families are increasing faced with succession dilemmas, particularly as land values increase and non-farming members want a “share”. 

Succession is a word that needs to be used more around the kitchen table.  It could also cover a valuable old tenancy with statutory succession rights, or simply land owned by some family members, but farmed by others.  High land prices often mean land is hugely valuable, so succession also covers potential inheritance tax traps.  Agriculture is a particularly capital-intensive business with relatively low returns compared to those values but inheritance tax is at 40% where relief from inheritance tax is not available.

It is often assumed that inheritance tax does not apply to farmers because of the availability of 100% relief.  However, the small print of legislation needs to be satisfied for that relief to be available and the alternative can be 50% relief on assets or none at all.  With appropriate planning and organising ownership in the right structure, potential inheritance tax liabilities can be reduced from very substantial sums to nil.  This does not necessarily involve handing over assets at all, but making sure that the current owners qualify for the maximum relief.

Inheritance tax planning is not a matter of a one-off review as HMRC interpretation of the legislation is constantly evolving and the 100% relief jealously guarded.  For example, anyone who reviewed their inheritance tax situation three years ago would be well advised to revisit it with their advisers now.  The particular area of concern is of course the availability of inheritance tax relief on the farmhouse.

If the older generation is keen to hand over assets, but it is felt that the younger generation should not have outright ownership just yet, consideration should be given to the use of trusts.  These do not need to be expensive to set up, difficult to understand or a threat to the flexibility of the business.  They are commonly used where the next generation is still young, there are concerns about the possibility of a divorce or there are financial worries.

We are seeing more farming family disputes now than ever before.  Families should try to avoid disputes by planning for succession, taking professional advice, rather than leaving it too late. 

For more details contact Jonathan Long or Jeanette Dennis at Ashtons Legal’s Guildhall Street office in Bury St Edmunds.  Telephone 01284 727012, email jonathan.long@ashtonslegal.co.uk or jeanette.dennis@ashtonkjc.co.uk