Harvest Home - Planning to Keep it in the Family

Autumn is traditionally the time of year when we give thanks for the harvest gathered in.  Historically, a good or bad harvest would colour not only how well you ate in the months ahead but possibly whether you ate at all.  What used to be a way of life is now firmly regarded by most farmers as a business with assets to manage and protect.  A host of rules and regulations mean mounting paperwork which competes for a farmer’s time with the farming itself.  Budget announcements, new tax regulations, environmental management schemes and the Single Farm Payment Scheme (SFP), have put pressure on many farms' cash flow projections.  These represent everyday problems - but what about the future?

You may have benefited from the increase in the value of farm land over the last few years, even if you had a difficult harvest this year.  Whatever your farm or land-based enterprise is worth, in time you will want to pass it on to your heirs.  If you want them to inherit the real value of it, not what is left after H M Revenue and Customs has had its share, start planning now.  Farming and agriculture are entitled to unique tax reliefs but, with many farmers moving away from traditional activities towards the profitability of diversification, the tax reliefs dependant on the activity of farming or agriculture could no longer be available. 

Agricultural Property Relief (APR) may be available at 100% on death which means a great saving in inheritance tax, but this depends (in simple terms) on the farm land being used for agriculture and the farmhouse (if it is to attract relief) being not only the centre of the farming operation but also being surrounded by land in the same ownership.  APR is becoming increasingly difficult to obtain, particularly with regard to the farmhouse, and it is important to be aware of current Revenue attitudes.   Lifetime planning (putting it into a trust) may be the answer, but in any event it is worth investigating the possibilities of a tax-efficient will.  With an appropriate will, your executors can distribute your estate in the most tax-efficient way on your death.  This ‘wait and see’ solution demands trusted, and possibly professional, executors together with clear guidance in the form of a Letter of Wishes.

The definition of ‘farming’ in the Inheritance Tax Act of 1984 is far removed from today’s reality.  The collapse of farm prices in the ‘90s, the thrust towards diversification and the move from production-based subsidies to land management subsidies have all served to introduce the concept of the ‘fiscal farmer’.  The SFP has also introduced the idea of the environmental steward.  A reduction in farming activity as a result of diversification may mean that Business Property Relief needs to be applied for as well as APR. 

So as you can see it is complicated.  ‘Farming’ includes stud farms but not liveries, short rotation coppicing but not long-term woodlands, income from livestock grazing but not grazing by horses.  Maybe it is time for you to take advice and find out where you stand.

Selena Hinds is a legal executive at Raworths LLP Solicitors of Harrogate and specialises in Probate, Wills and Trusts. You can contact Selena by telephone on 01423 566666, or alternatively by email at selena.hinds@raworths.co.uk