Safeguarding future of the family farm

Death and taxes eventually come to us all but for farming families succession planning can be particularly complex, given that agricultural businesses are held in a variety of ways and ownership can be split between the wider family.

Emma Elwess, Director of Private Client Department at Pearsons & Ward Solicitors in Malton advocates taking a holistic approach to succession planning in the agricultural sector to ensure the family business can thrive and be passed down to the next generation.

‘When it comes to safeguarding the future livelihood of your family, it makes sense to be prudent and take as much advice as possible to ensure your affairs are in order. There are a number of different professionals, such as land agents, accountants, and agricultural lawyers who can work together on the best ways of structuring your business, maximising tax reliefs and preserving an inheritance,’ says Emma.

Valuing your estate

One of the first steps is to have a clear understanding of the current size and value of your estate. It may have been many years since this was last done, so it is a good idea to ask an experienced land agent to provide an up-to-date valuation of all your property and assets.

Understanding potential tax liability

A tax expert can outline your current tax liabilities and suggest how this could be minimised.

They will examine how your farming business is currently held and advise you how the structure of ownership could be changed or transferred to ensure all available inheritance, income and capital gains tax reliefs are taken advantage of.

For example, the agricultural value of your property will be much lower than its ‘market value’ if your land has development potential, so although you could claim agricultural property relief on the land’s agricultural value on death, unless land ownership and occupation is structured to ensure business property relief also applies, inheritance tax (‘IHT’) at 40 per cent may be levied on the difference between agricultural and market value which could be a considerable sum.

Gifting your land into trust in your lifetime for the benefit of your descendants is also worth considering, and may save IHT if the trust is structured correctly.

Capital gains tax, meanwhile, which would arise on any profits made when you sell any of your land while you are alive, can be minimised from 28 per cent to 10 per cent if you can take advantage of entrepreneurs’ relief. Alternatively, the gain can be ‘rolled over’ if the sale proceeds are reinvested in the purchase of other qualifying business assets.

Review the ownership and legal structure of the farming business

Given that farming businesses are held in so many different ways, such as in trust, through a partnership or limited company, it is essential for successful succession planning to properly document the way your farm operates, who has ownership shares of it, and who is actively involved in running it.

Documents relating to land ownership, partnership agreements, wills, accounts and trust deeds should be checked to ensure they do not contradict each other and are updated when required.  Land should be registered, any beneficial or legal interests in the land should be in writing, and a declaration of trust contained in a signed partnership deed should detail which property is jointly held and which is partnership property.

Making a will and lasting power of attorney

Once you are satisfied that your farming business is structured in the most tax-efficient way, we can advise you on creating a lasting power of attorney which lets you select people you trust to make decisions on your behalf if you should become incapacitated during your lifetime.

Making a will is, of course, the most essential element of good succession planning, ensuring that your assets are distributed as per your wishes when you die. Without a will, your estate would be distributed according to the intestacy laws, which exclude unmarried partners and stepchildren, and may not be what you or your family expected.

Contact Emma Elwess, Director of Private Client at Pearsons & Ward Solicitors on 01653 692247 or email emma.elwess@pearslaw.co.uk.  We can help you draft a will, liaising with other experts involved in the succession planning process as necessary, to ensure that all your property and assets are passed on according to your exact wishes.