Tax planning for farming families

The face of British farming has changed remarkably over the last two decades, with the increased need to diversify, coupled with changes in compliance and a more global marketplace. This has led to many farming businesses needing to adapt and adequately plan for the future to ensure their businesses survive and can be passed onto the next generation in the most tax efficient way. 

A well-constructed estate plan can help save a lot of family angst and provide peace of mind, thus reducing the risk of farming families being forced to sell property and assets to fund an unexpected inheritance tax bill. 

The range of tax reliefs applicable to farmland and rural businesses are generous, and as such professional advice should be taken when considering their application. 

Topics to be answered in this article

The business of farming

The structure of your farming business can have a significant impact on your tax bill. It is, therefore, important that farming businesses review how their land and other capital assets are used. For example, incorporating all (or even part) of your business into a limited company can have a considerable impact on the rates of corporation tax and income tax applicable. 

 

A carefully considered partnership agreement, or shareholder agreement can help maximise the inheritance tax reliefs available. These should be reviewed on a regular basis to ensure they still meet the needs of the farm and your family. Moreover, agreements such as the above should be looked at in conjunction with your Will to ensure they align.

Agricultural Land Diversification

Around half of all UK farmers now use some form of agricultural diversification in their farm business, providing additional income and opportunities to the table. It is vital that farmers and business owners understand the tax implications of change of land use, along with the allowances available. 

Diversification carries the risk of the associated land or property no longer qualifying for Agricultural Property Relief (APR) because it isn’t viewed as being used for agricultural purposes. In turn, this can make Business Property Relief (BPR) more important in relation to mitigating exposure to inheritance tax. However, it is worth noting that if HMRC views the diversification as an investment rather than a trading business, BPR may not be available. 

For example, solar farms can have significant implications from an inheritance tax perspective. Where land is being leased for solar development, and therefore no longer being farmed, certain reliefs may no longer be available. This is where professional inheritance tax planning advice can be very effective in terms of reviewing how that land is held going forwards – consideration could be given to either lifetime gifting or the transfer of land into a trust.

Tax and the farming family

The preparation of a Will is a good place to start when planning for the future of the farm. It can help mitigate the farm’s exposure to inheritance tax by taking into account the potential application of both APR and BPR.

 

APR can enable you to pass on some or all of a working farm tax free. BPR can also be applied where assets are held as business or partnership property. It is, however, important to note that strict criteria must be met in order to qualify for these reliefs, and as such it is vital that you take legal advice to determine whether your assets will qualify and to what extent. Advice could also cover how your estate could be structured to obtain such reliefs in order to protect your farm for future generations. 

 

If you were to die intestate (without a Will) then you have no say over what happens to your estate. In these circumstances the rules of intestacy would apply, meaning your farm could potentially be divided between a number of close relatives – and not those you would have chosen yourself. It goes without saying that this could create major disputes within the family, threaten the farm business as a whole, and incur costs to the estate and your beneficiaries which may have otherwise been avoided had estate planning advice been sought and a Will prepared.

 

A further consideration, and one which is perhaps not always considered of high importance, is the contractual terms of family members working on the farm. There are a number of tax benefits to be gained, however it is important that the tax position of all family members involved in the farm are considered. The failure to prepare official employment contracts that detail the terms and conditions of such employment can give rise to both legal and succession planning issues. 

How can Goughs help?

Our team of specialist agricultural solicitors can work with you to develop a thorough understanding of your circumstances and help plan your estate accordingly. It is imperative that farming families take specialist legal and tax advice in relation to their farms and land to maximise the reliefs available to them and protect their farms for the future. Contact us to discover how we can help you.

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Author Bio

Luchia Hirst

I have been practicing Private Client law for close to 8 years, and really enjoy the client contact and hands-on nature of this area of practice.

I deal with all aspects of private client work with a keen interest in Wills, the administration of estates, Deputyship Applications, and Enduring and Lasting Powers of Attorney. I enjoy helping and supporting the local community and find the variation and complexity of matters which come across my desk incredibly interesting.

Amber Ballans

I qualified as a Solicitor in 2021 and chose to specialise in Employment Law as I take pride in offering pragmatic solutions to clients, supporting them with the everyday challenges they come up against.

I learned very quickly that there’s no ‘one size fits all’ in Employment Law, so I am able to be myself, getting to know and understand my clients and their needs, in turn offering advice that isn’t just technical and legal, but practical and attainable.

Outside the office I enjoy jogging with my dog, a Japanese Akita cross Alaskan Malamute, boxing with my fiancé and doing pilates. As a film buff, I always enjoy a tv and film round at a pub quiz and love musical theatre.

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