Farming Inheritance – Planning For The Future
As a farm owner, it is crucial that steps are taken to protect the farm and your estate for future generations through careful Will drafting, consideration of Partnership Agreements, and the development of a succession and inheritance plan. The generous tax reliefs currently available may not be around forever, and provide a welcome opportunity to review your affairs and plan for the future handover of the farm.
Inheritance tax is charged following death on estates valued higher than the current threshold of £325,000, which threshold can double to £650,000 in certain circumstances where a spouse or civil partner has previously died. Since April 2017, additional relief is also available in some instances in relation to the family home. As a result, the maximum Inheritance Tax relief currently available for a married couple with children is £950,000, which will increase to £1million from April 2020. That being said, it is worth keeping in mind that many farms are worth well in excess of this figure. If it were not for the benefit of Agricultural Property Relief (APR), many farming estates would face a hefty Inheritance Tax bill, often resulting in disastrous consequences, including forcing the sale of the farm.
This is where expert advice is often needed to ensure that as much relief as possible is claimed so that the farm can continue for many generations to come.
Agricultural Property Relief
Agricultural Property Relief is a relief from Inheritance Tax, generally at the rate of 100%, however, in some cases, only 50% relief is given. The relief, therefore, can be extremely valuable to an estate consisting largely of farming assets.
Broadly speaking, relief is given on property defined by HMRC as agricultural in nature, which has either been owned and occupied by a farmer for two years before his death, or which has been owned and let out to a farmer for 7 years before the owner’s death. Whilst proving that land and farm buildings qualify for the relief can be fairly straightforward, it can often prove more difficult to claim that the farmhouse qualifies for such relief.
When is a farmhouse not a farmhouse?
For the farmhouse to qualify for Agricultural Property Relief, it must also meet various additional criteria.
Whilst the farmhouse must be occupied both with the land qualifying for relief, and must be used for the purposes of agriculture, it must also be of a character appropriate to the farm on which it is situated.
In order to be “character appropriate”, the farmhouse must be a working farm, and not a large manor house simply surrounded by farmland. It is usually where the farmer himself lives and is central to the farming operations. It is usually advisable to have a physical inspection of the property carried out so that a decision can be made as to whether the farmhouse is likely to meet the Agricultural Property Relief conditions.
It is also usual for farmworkers cottages situated on the farm to qualify for Agricultural Property Relief, and Hatchers can advise you on this aspect.
Agricultural Property Relief is not available, can I claim Business Property Relief as an alternative?
Where property or land does not meet the conditions required in order to claim Agricultural Property Relief, it may be possible that an alternative relief, known as Business Property Relief, can be claimed to save the asset from being subject to Inheritance Tax. A common reason for this is where the land in question has development potential, placing the value of the land considerably higher than the agricultural value which it would otherwise have had.
How we can help
At Hatchers, we are used to dealing with farming estates, with several staff members within both our Wills, Probate and Trusts and our Agricultural teams coming from farming backgrounds or rural communities.
We will not only look at your current situation, but also discuss with you your plans for the future.
It is important that we discuss with you how the assets of the farm are owned and how the land and buildings are owned and occupied. We understand that the role each person plays in the farming business may change over time, and we will help you understand the impact that this may have on the future of your farm. We can also help to give you peace of mind in planning your retirement, by providing you with a plan for the succession of the farm, and also a review of your other assets.