Succession planning is vital for farming businesses
Linda Tinson says inheritance tax changes should be focusing minds
As the 18th century US statesman Benjamin Franklin said: “In this world, nothing is certain except death and taxes.”
The strand that links these two certainties in life is inheritance tax, changes to which will take effect in April 2026 and impact all business owners, none more so than in the agricultural industry.
Agricultural businesses often carry high capital values but offer low returns, meaning the impact of the tax changes pose a significant threat for farms carrying a valuation above the new allowances.
On a positive note, the changes are forcing conversations within farming businesses around succession planning which until now were often in the “too difficult” pile. With the looming spectre of inheritance tax being chargeable on business and agricultural assets, now is the time for action.
The first and most important step is to establish where you stand by undertaking a valuation of all the assets in question, remembering to offset any debt. This will determine the potential tax exposure. As part of that exercise, it is extremely important to fully understand the composition of the assets, the ownership of them, and the profile for each of the relevant individuals.
Having a full audit of your current situation carried out to glean information on ownership and tenancy interests, the structure of the partnership and agreements, limited company governance and shareholdings, and any diversified or potential development projects is essential. Only when all that information has been collated can it be ascertained what the likely inheritance tax exposure of the various parties is likely to be, and informed decisions made.
In any family business, it’s important to remember tax should not be the driver for otherwise unplanned business changes, although it may well be the accelerator.
There has been a lot of discussion in the industry around gifting in life and making full use of personal allowances available to individuals by way of their personal nil rate band, as well as the additional exemption of up to £1 million for agricultural and business property reliefs. With this in mind, it may be that some lifetime gifting is advisable, though to what extent will depend on individual circumstances.
These circumstances can be wide-ranging and complex, and very frequently we find things are not as they seem.
For example, the ownership of land may actually be held by an individual or individuals where it was thought to be owned by the partnership or business. Alternatively, it could be the other way around, where it is thought the property is owned by an individual but the farmland and buildings may have been introduced to the company accounts as an asset of the partnership.
The partnership accounts may have debt to offset against these assets and we may also find that the capital interest in the partnership assets is not reflective of the original position. Not only does this mean that what was thought to be the value of the estate of that individual who has passed is not as anticipated, it can also make specific gifting of assets or bequest of specific parts of a property problematic and sometimes impossible to deliver.
Many farmers are rightly concerned by the impending changes and what they might mean for passing on land held in their family for generations. The good news is that proper planning and preparation will allow for mitigations to be implemented against the changes for many, if not all, farming businesses.
Linda Tinson is partner and head of rural business, Burness Paull LLP