Don't neglect planning for your farm's future
Thursday, 24th April 2014
This article was first published in the Westcountry Farmer on Wednesday 23rd April 2014 and can be found online on the Western Morning News here.
There are many financial, regulatory and time pressures facing farmers. As a result the fundamental issue of succession planning, whilst often at the back of everyone’s mind, is often neglected. Yet without a plan in place, the future success of the farming business, which may have been in the family for generations, may be placed in jeopardy resulting in the break-up of the farm and costly legal disputes.
The first step in any succession plan must be an up-to-date Will that disposes of your entire estate to your chosen beneficiaries. The nature of a modern farming business, which may consist of a number of different business elements, and the dramatic increase in land prices over the last 10-15 years, often means that an equal split (in terms of value) of the assets between the children will not be economically feasible for the ongoing success of the farming business. Your circumstances may be such that you can carve-up land and buildings in such a way as to preserve viable farming units for the farming children, whilst providing for non-farming children by way of cash and investments, letting properties, a share in development land or a lump payable from the farm over a number of years.
With a Will in place to cover the possibility of an untimely death, attention should then turn to an analysis of your present Inheritance Tax (IHT) position and fully utilising the attractive IHT reliefs of Agricultural Property Relief (APR) and Business Property Relief (BPR) that are available.
With an understanding of your potential exposure to IHT, a plan can then be put in place to reduce the liability over time by way of lifetime gifts or changes to the structure of the business.
For example, it is not uncommon for a farming partnership to consist of an elderly farmer (occupying a farm bungalow) farming in partnership with his son or daughter (who live in the main farmhouse). Difficulties can arise if the elderly farmer has to vacate the bungalow to move into a care home. In such cases HMRC have recently successfully argued that the bungalow is no longer occupied for the purposes of agriculture and APR is denied. As part of a long-term succession plan these circumstances may present an opportunity to bring the next generation into the farming partnership and at the same time moving them into the bungalow to ensure it is still occupied for agricultural purposes.
If you have farm land or buildings with development potential with the possibility of a sale in the near future, whilst the asset may presently qualify for BPR, the cash proceeds (which could be significant) would not. Consideration should be given to "locking-in" BPR before the land is sold by the use of discretionary trusts (from which all family members could benefit over time) with the resulting cash proceeds being outside of your estate for IHT purposes.
Each farming business will be different. Any succession plan should be undertaken in a structured fashion with input from family members as well as your legal, accounting and financial advisors, to ensure that your wishes and the needs of the business are met.
Tom Biddick is associate in the Trusts & Estates Team at Ashfords. He acts for a number of wealthy families and individuals advising them on all aspects of Private Client work including Wills, Powers of Attorney, Estate Administration and Court of Protection Applications Succession Planning.