Wealth Confidential: Succession planning for Scottish farmers and estate owners
From Friday, 5 July until Sunday, 9 July, the glorious setting of Scone Palace will provide the stunning backcloth to the annual Game and Wildlife Conservation Trust (GWCT) Scottish Game Fair. Waverton will be there again as one of the charity’s major sponsors.
The face of British agriculture has been radically changing. The cost of increased compliance and the urgent need to diversify have increased an already growing series of financial pressures on all farmers and landowners.
But, despite these pressures, successfully preserving the farm or estate for the next generation is still the biggest challenge of them all.
Land values, for example, have still been increasing much faster than any increase in Inheritance Tax thresholds. Not planning for this tax could prove financially ruinous for surviving family members wishing to continue to profitably manage the farm or estate.
Given the GWCT’s clear focus on “conservation”, it is entirely appropriate that this will also be the hottest topic in the financial planning chats we expect to have with farmers and estate owners over the three days of at the fair. The conservation of their wealth and how to tax-efficiently pass it to their successors is always their top priority when we meet them.
And at the core of these discussions will be Agricultural Property Relief (APR). It is the only HMRC concession that provides Inheritance Tax relief for owner-occupied farmhouses as well as relief for those landowners who are letting their property. That is obviously a good starting point in creating a tax-efficient succession plan, but what about their land where values are rocketing?
In order for land to qualify for APR, it has to be used for the purposes of agricultural production. If land is used for other purposes such as the recent diversification into environmental schemes, which could be crucial to an estate’s financial survival, there is a has been a very real concern that such a move it could potentially jeopardise the owner’s APR and perhaps even their Business Relief. It has made many landowners reticent about embracing these potentially lucrative new income options.
In his recent Budget, Jeremy Hunt at last gave landowners some reassurances. He extended the existing scope of APR to land managed under an environment agreement with – or on behalf of – the UK Government, devolved administrations, public bodies, local authorities or approved responsible bodies. The relief will be available for both lifetime transfers and for transfers on death.
APR is available on property at two rates – 100 per cent where vacant possession can be obtained within 12 months and 50 per cent in all other cases.
So, APR is now an even more essential tool in succession financial planning for all farmers and landowners, especially when used in tandem with other tax-efficient asset transfer tools. Transferring more wealth into a pension fund, for example, can create another substantial Inheritance Tax-free pot for family members when you have gone.
But there are many other routes you must also consider, particularly as this recent extension of APR to environmental projects can only protect the agricultural value of the land and not its potentially much higher commercial market value. That shortfall will also have to be covered if succession planning is to be truly tax effective.
If you are a farmer or landowner seeking to build a tax-efficient succession plan, why not join us at the Scottish Game Fair? We can discuss ways you can make the most of available tax reliefs and explore the benefits of passing assets to your family at a far earlier stage.
- Simon Wigglesworth is a director and chartered financial planner at Waverton Wealth.
To find out more, visit Waverton’s website here.