Rural succession planning
When passing on your farm to the next generation, you will want to do so in the most tax efficient way as possible. Through careful succession planning, this can be achieved. If you do not plan for the future, your estate could be hit by an unexpected inheritance tax (IHT) liability on your death if your farm and interest is not set up in way that will attract certain inheritance tax reliefs.
A good place to start with succession planning is by you making a will. By making a will, you can help avoid potential disputes that may arise through the rules of intestacy (the rules that apply to your estate if you die without making a will) which dictate who will inherit your estate. Under these rules, if you are survived by, for example, your spouse and children, your spouse will be entitled to receive the first £250,000, your personal possessions and half of whatever is left. Depending on the value of your estate, this could leave the spouse vulnerable if they do not inherit the whole estate and attract an IHT liability as the assets passing to the children will not be covered under the spousal exemption rules. Furthermore, if some of the children are involved in the family farming business, and others are not, it could lead to disputes within the family especially if some of them need to raise money to buy out their siblings who do not an interest in the future of the farm.
In addition to the above, by making a will, it will give you the opportunity to review the structure of the business and the legal documents behind how the farm is operating. For example, you may have a partnership deed or shareholder agreement. You may also need to review any tenancies and grazing licences that have been granted.
Will planning will also allow you to review the IHT position of the farm and whether your interest would qualify for Agricultural Property Relief (APR). APR is a generous relief available to your interest if certain conditions are met. APR is a relief available on the agricultural value of agricultural property. If the conditions are met, APR can minimise the amount of IHT payable on death.
In short, APR is available on transfers of land occupied for the purposes of agriculture, together with appropriate buildings and farmhouses used in conjunction with that land. The property in question must have been either occupied by the owner for the purposes of agriculture for two years prior to the transfer or owned by you for seven years and occupied by someone else for the purposes of agriculture throughout that period.
It is often assumed that your farmhouse will automatically qualify for APR if the land is being farmed, but if you are no longer able to farm through ill health or retirement, this can present problems. Also, if you are living in the house, but you have let all of your land out to tenants, claiming the relief on the farmhouse can be problematic. Such a scenario could impact on the level of IHT payable although through careful financial planning this can be mitigated as much as possible.
Any grazing licence arrangement that you have should also be considered to ensure the conditions for occupation are met. Although the land is grazed by someone else, you will want to ensure you are still deemed to be the occupier for the land to qualify for APR. Retaining responsibility for the maintenance and repair of the land is also essential to prove the conditions for occupation are met.
By putting together a succession plan for you and your family, reviewing it regularly in light of any changes to circumstances within your family or business, this can ensure that your farm passes in the way you wish after your death. Taking advantage of all possible tax reliefs is a must and can save your family many thousands of pounds. It is essential to obtain specialist legal advice when succession planning. The rural team at Sintons can give you the bespoke advice and support your need to plan for your own situation.