Succession Planning for Farmers and Landowners

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Too often farmers put off decisions about the future of their farm and this may be because they can’t decide what to do and who to take advice from.  A good starting point is their solicitor who can explain what ownership structures are available, the need for a Will and explain around the minefield of tax.

Here are some considerations when dealing with succession planning for farmers and landowners:

1. Talk to your family in good time about what your ideas for the future are and what theirs are. It can be useful to bring in a third party such as a solicitor or land agent.

2. There may be several children, some of whom are not involved in the farm. You may need to accept that, to enable the farm to continue as a viable business, you can’t treat them all equally.  You may be able to leave non farming assets to members of the family who are not involved in the business.

3. Who owns the farming assets and who lives on the farm? What is the basis of occupation? How will this change in the future? Is it a tax efficient structure?

4. Is there potential for development on the farm? Agricultural Property Relief (APR) for Inheritance Tax (IHT) is only available on the agricultural value of the land and buildings. This means that, if land or buildings has development potential, the value over and above the agricultural value will not attract APR. The agricultural value is the value assuming the property can only be used for agricultural purposes and for nothing else whether or not that is the case. Consider hiving off potential   development land during your lifetime before it attracts a large IHT bill on death.

5. Take tax advice. APR & Business Property Relief can help to avoid and reduce Inheritance Tax but there are pitfalls to avoid. Giving away assets can trigger a Capital Gains Tax (CGT) bill so again advice is necessary.

6. What will your future income needs be? You need to put suitable arrangements into place to ensure you have sufficient income for your future. Pensions can play an important part of succession planning. There are a number of investment options and you can also continue to receive income from the farming business even though you are working less.

7. It’s important to make a Will remembering also that it can be changed at any time. Your solicitor will explain what structures can be put in place to achieve your wishes.

8. How will assets be protected if a member of the family is involved in a divorce? A pre-nuptial agreement can help, or a Trust may be an effective way to protect your assets. However, make sure you don’t put arrangements in place which can’t adapt to changing circumstances.

9. Where there is more than one house on a farm make sure that the ownership and occupation of the house maximises on IHT and CGT reliefs. Consider also whether the market value of the house is in excess of the agricultural value.

10. Revisit your plans and your Will from time to time. Things can change in the business and above all tax legislation may change.

Talk to your solicitor or other advisor who can review and update anything that needs to be changed.

Get in touch – Ian Naylor has many years’ experience in advising on succession planning for farmers and landowners all over the country. He can also advise on Wills and taxation. Bowcock & Pursaill are members of the Agricultural Law Association.