Succession planning is a vital tool for all businesses and something that should constantly be looked at and updated. Farming families are no exception to this rule and it is important to ensure that the future plans still work for all members of the family. A change in government is one of those times when it is important to ensure all the plans that are in place are fit for purpose.

Government Plans

Throughout their election campaign and since taking office the new government have been instant that there will be no increase to the 3 main taxes, Income tax VAT and Corporation tax. This has been despite the “discovery” of a significant blackhole in public finances. With such a blackhole and a desire to invest in public services, one of the key battle grounds for raising funds could be via inheritance tax.

Labour initially identified 2 key themes which would affect agriculture which were around planning and green energy. The possible attack on Agricultural Property Relief (APR) therefore came as a bit of a shock to many in the agricultural industry. Whilst there is no guarantee that anything will happen to APR it is imperative that we understand the potential pitfalls of what this could mean when considering succession planning on the farm.

Agricultural Property Relief

This is a key relief for farming families which allows for the transfer of land and operations with out the heavy burden of paying out vital cash by way of inheritance tax. Farming is an industry which is notoriously asset rich and cash poor, meaning whilst there are often good profits, these are often invested straight back into land or machinery. For this reason, the introduction of Agricultural property relief has been a welcome tax and estate planning tool since its introduction.

Should I transfer Land?

Given the uncertainty around this many farmers are considering whether they should now be looking to transfer land down the generations. To understand whether this is the right thing, firstly it is important to understand the current rules and how they would apply to you. It is important also to know firstly one the long-term plan is for the younger generation of farmers.

At present should an older family member wish to transfer land to a younger member of the family, the process is very straightforward and very appealing from a tax perspective. When passing land down to the next generation this creates a capital gain for the person passing the land down. To avoid paying Capital Gains Tax (CGT) we claim a relief called Holdover relief.

Holdover Relief

Holdover relief allows you to defer CGT when you gift business assets to someone else. Instead of paying CGT immediately, the tax is passed on to the person who receives the gift. They’ll pay CGT when they eventually sell the asset. In essence this means that the person acquiring the land has acquired the land at the cost price which was paid by the person gifting the land.

What the stakeholders want

In a farming family where there are plans to continue farming the land for years to come there is no real downside to transferring land from a tax perspective as there will never be an intention to sell and as such there will never be the crystallisation of the capital gain mentioned above. It should be noted though that transferring the land does mean the loss of control over said land and could lead to family disputes, so it is important to consider all of these things prior to transfer.

Conversely, where there is not certainty with the next generation as to whether they will continue to farm the land APR in its current guise is a very valuable tool as this effectively negates a CGT liability for the individual inheriting the land.

There is nothing definitive to suggest APR will be removed by this government either in the upcoming budget or across their time in office. Nevertheless, for those who are concerned about potential removal and want some certainty looking at what the current rules allow maybe something for consideration. Regardless of your situation it is important for all farming families and indeed all businesses to consider succession planning long before the need for them to be implemented arises.

If you would like to discuss any of the above in more detail, please do not hesitate to contact Steve Robinson.