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Increasing pension certainty offers significant tax benefits to farmers

pension-picture

 

It now seems definite that the changes made last year to pension rules will remain unaffected in the forthcoming Budget. These changes, particularly to the way pension scheme assets are taxed on death, have been very beneficial for farmers who have farmland within their own pension schemes. Prior to these changes, which took effect on 6th Aril 2015, there was a danger that the scheme would be subject to a 55% tax charge on the death of either the pension scheme owner or their spouse or dependent who inherited the scheme. This would have meant that either some of the farm land would need to be sold to pay the tax charge, or funds would have to be found from elsewhere. This could have put a great strain on the next farming generation.

 

Under the new rules, the person(s) inheriting the balance of the pension scheme will not be forced to sell the farm land, because if any tax is payable, it will only become payable when and if money is withdrawn from the scheme. Under the new rules, there are 2 different scenarios, both of which are better news for farmers:-

 

    1. 1. If the farmer who owns the pension scheme with land in it dies before age 75, no tax will be charged on the transfer to the next generation, and they become the outright owners of the farmland.

 

  1. 2. If the farmer dies after age 75, tax will be charged at the beneficiaries highest marginal rate of tax at the time they withdraw money, so the highest rate of tax will be 45%, but will most likely be significantly lower.

 

So the pension picture looks much better for farmers, and also makes the transfer of farm land to pension schemes a more attractive option now than it has been in the recent past.

 

To learn more about how we support farmers and rural communities visit our dedicated farming website www.accountantsforfarmers.co.uk