Succession Planning for Farmland
With farmland being valued at an all-time high, planning relaxations enabling more housing development, and the average age of farmers in the UK around 59, it is clear that succession planning should be a priority for all farming families. This should not be a decision taken by the older generation alone, but a realistic outcome worked through in discussions involving the whole family. Transparency and openness can help to minimise the risk of acrimonious, costly and damaging disputes later.
Inheritance Tax Reliefs
Tax considerations are important, but should complement the family dynamic, and never “straight-jacket” the overall objective. The farming community are generally aware of the Business and Agricultural Property Reliefs (BPR and APR) against Inheritance Tax (IHT) but often overlook the subtleties. APR at 100% gives relief for the basic agricultural value of the land only – any development value remains potentially chargeable and HMRC regard some of the value of the farmhouse as “personal” and so ineligible for APR. Their rule of thumb suggests 30% as a starting point. A business interest (including a partnership share) attracts BPR at 100%. However if land is held personally, but is used for a partnership business, the rate of relief drops to 50%. And if the business is run as a company, unless the deceased had control of the company, there is no relief at all. The interaction between APR and BPR is complex.
The “holy grail” for maximum BPR relief to cover any potential development value, is for all the farmland to be held as partnership property. This requires:
• title to the land to be registered in the partners’ names,
• comprehensive partnership agreement defining the land as partnership property; and
• the partnership accounts drawn up to reflect the position accurately.
Unfortunately, it is rare to see all three matters so seamlessly dealt with that HMRC challenges can be swiftly overcome: the greater the areas of ambiguity or where documents conflict, the greater the risk of reliefs being lost and perhaps the succession intentions failing. Time and effort spent now ensuring appropriate documentation is in place which is relevant to your circumstances together with compatibility with your wills could save many thousands of pounds of IHT in the future.
Land Capital Accounts
A recent development has been to have separate Land Capital Accounts (LCAs) documented in the partnership agreement and in the annual accounts. In essence, the land is held as partnership property (attracting the full 100% BPR), but its value is credited to the LCAs of certain partners. Wills carefully drawn up to complement this structure can ensure that the LCA passes on death to the chosen successor. To achieve this result it is imperative that the expertise of the family’s accountant, solicitor and agricultural advisor is combined. All documentation should be reviewed with meticulous attention to detail. For more detailed legal advice get in touch with kHyde@bowcockcuerden.co.uk
(This article is not intended to be comprehensive or to provide specific legal advice. It should not be relied upon in the absence of advice given in relation to particular circumstances.)