Estate Planning for Farming Families

Posted on April 4, 2017

Rural businesses are being urged to review their succession planning amidst European uncertainty and the advice of a professional is necessary, more so now than ever, in order to minimise potentially large tax bills

For all Estates, a clearly planned Will and strategic business plans can help save Inheritance Tax, as well as avoid family disputes when a Will is contested. When Estates have a business or agricultural element planning is crucial to ensure the future of the business and to mitigate tax.

Currently it is possible for qualifying business assets to be passed on with potentially 100% relief from Inheritance Tax, either through the use of Business Property Relief (BPR) or Agricultural Property Relief (APR) for farming assets. These reliefs often work in tandem and so should be considered together when undertaking any form of inheritance tax planning. There are strict eligibility criteria and any claims are often heavily scrutinised by HM Revenue and Customs. So obtaining the correct advice on how Estate planning may affect your ability to claim these valuable reliefs is essential.

Pearson’s Private Client team are proud to act for a wide range of rural clients, including farming businesses and partnerships and are aware of the regulations which affect rural businesses.

“Sometimes a ‘farming family’ can involve multiple generations. In order to avoid any confusion over who gets what in an estate of this type it is essential to have a watertight and professional Will,” said Private Client Partner, Daniel Prince, “Whilst it may be tempting to make a “DIY” will, errors in drafting can have detrimental effects on who actually inherits and families can leave themselves open to otherwise avoidable tax liabilities”.

It is estimated that 60% of farmers do not have a plan for their business or estate.

“The business structure could be re-evaluated to reduce the resulting tax liability and we would urge our farming clients to make sure their Wills are in order to reflect their intentions. They should also consider taking advice on the business side of the farm. They may have worked there all their lives, but often by appointing a solicitor or financial adviser we can make the farm work better for future generations,” added Mr Prince.

When making a Will farming clients should take into account all those generations and family members contributing towards the livelihood of the farm, as well as those who live on the estate, and plan accordingly for the sharing of the business and estate.

With the new residence nil rate band (RNRB) introduced April 2017 farming families have even more to consider when Estate planning. It is a potentially valuable relief which can, if utilised properly, reduce inheritance tax even further.

The rules governing the relief are strict however, and securing the RNRB is only possible if property is passed to direct descendants, such as children or grandchildren. This may seem particularly unfair to farmers who intend to pass the family farm onto other family members (such as nephews and nieces) who have contributed to the business. Similarly, if property is left on discretionary trust, even if direct lineal descendants are in the class of beneficiaries, this would meant that the RNRB is lost.

RNRB offers inheritance tax relief on main residences passed to direct lineal descendants in addition to an individual’s current nil rate band of £325,000. The RNRB will apply to deaths on or after 6 April 2017 and will be £100,000 in 2017-18, rising in stages to £175,000 in 2020-21. For couples who qualify for the relief, an inheritance tax saving of £140,000 can be made but the rules are tricky and advice should be taken.

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.