How will the farm be dealt with after your death?

Handing over the farm you worked so hard on for so long to a new generation may seem like a heart-wrenching decision – which may explain why a University of Exeter study reveals that only 20% of farmers in the UK plan to fully retire.

However, even if you intend to keep working until you die, it’s important to put measures in place to ensure your farming business can continue to thrive and your loved ones don’t face a crippling tax bill after your death, as Emma Elwess, Director & Head of Wills & Probate at Ware & Kay incorporating Pearsons & Ward Solicitors in Malton, explains.

What happens to your farm after you pass away largely depends on how it’s held. If the freehold is in your sole name or jointly held as tenants in common, you can leave your share to whomever you please; while if you own it as joint tenants, your share will automatically go to the other owner or owners on your death.

If the farm is held as a partnership and there is no partnership agreement, under the Partnership Act of 1890 then technically the partnership will be automatically dissolved when you die. The farming business may be sold and your estate will take your share of the assets. The remaining partners may try to form a new partnership to continue the farming business but may not be able to raise the money to do so if they have to pay out your estate – hence a partnership agreement is therefore very important.

If the farm is held as a limited company, your shares will be distributed depending on which of the following are in place:

• your Will: the shares will be transferred to the beneficiary and they can choose to remain as a shareholder or sell the shares;
• articles of association: many farms use default rules which means the person who is left the shares can become a shareholder or sell to a third party; and
• shareholders’ agreement: these usually have provisions to prevent non-farmers coming in and having a say in how the farm is run; eg, a right of first refusal, giving surviving shareholders the chance to buy your shares before anyone else.

However the farm is held it’s imperative to leave a Will. Without one, the farming assets will be distributed to your close relatives under the strict rules of intestacy – which may not reflect your wishes and might mean the farming business having to be broken up and sold to ensure all beneficiaries receive their fair share.

Before making a Will, however, you need to assess how much your assets are worth and – given that farms are usually handed down through the generations and the ownership lines can become blurred – who they are owned by. A land agent can help with the former, while the latter can be achieved by checking Wills, accounts, partnership agreements, company articles, trust deeds and Land Registry entries.

Only once you establish that there are no conflicts between these instruments, and that ownership of the farm assets are clearly documented, should you make a Will – otherwise unpleasant tax consequences and the loss of agricultural and business reliefs might ensue.

You may want to leave the farming business in the hands of those who have been involved in its running, but still want to provide for non-farming family members. One way of achieving this is to transfer the farming assets into a trust, managed by Trustees for the benefit of specific individuals. This allows non-farmers to receive an income, while ensuring the continued existence of the farm. Alternatively you could set up a limited company and with non family members having a different class of shares to the farming members which pay different dividends.

How we can help

Our team of agricultural and tax law specialists can work with other professionals in identifying and valuing farming assets and then ensure your farming business is structured – and your Will drafted – in a manner that minimises tax liability, while benefitting from all possible reliefs. They can also draft bespoke partnership/ shareholder agreements or set up trusts to ensure your family’s farming legacy endures.

For more information please contact Emma Elwess on Malton 01653 692247 or email emma.elwess@warekay.co.uk to see how we can assist.