Estate planning for land and rural business owners takes real understanding of the matters at hand, including reliefs specific to farming communities. We look at the top 10 things you should think about when planning for your and your family's future.
1. Inheritance tax (IHT)
Succession to your land and rural business can be disrupted by the payment of inheritance tax (IHT) at 40% on your death. The heir to your business may be burdened with debt or parts may have to be sold to pay the tax on their inheritance. Advice is needed to capture reliefs, and to mitigate remaining IHT.
2. IHT and capital gains tax (CGT) reliefs
IHT and capital gains tax (CGT) reliefs for land and rural business owners are currently generous but have been under increasing scrutiny. This may be the last window to use or lose the reliefs and so now may be the time to shift assets down the generations potentially tax free.
For more information read our blog posts on inheritance tax reliefs for land and rural businesses and inheritance Tax, APR and the Farmhouse.
Succession to your land and rural business can be disrupted by the legal rights claims of your spouse or children. Such claims cut across your will and the claimant effectively dips into your assets for payment out in cash. There is much which can be done to mitigate or avoid this.
Please read our blog post on land and legal right claims for more information.
4. An up to date will
An up to date will should be in place to set out who gets what and when. If you cannot yet identify your heir then a trust can act as a flexible holding bay between your death and the inheritance.
Please read our blog post on everything you need for a successful succession for more information.
5. A power of attorney
A power of attorney should be signed, naming someone to operate your land and rural business if you lost mental capacity to do yourself. If you operate via a company you may require further advice on this if you are a sole director.
Please read our blog post on family business plans for the future for more information.
6. Review agreements and articles
Your partnership agreement/company's articles of association/shareholder's agreement should be reviewed to check whether provisions about what happens on death would (1) prejudice IHT reliefs or (2) thwart your intention to leave the business to your heir. These can be changed to better suit the circumstances, with agreement of all parties.
Please read our blog posts on farm businesses and wills and tax planning and how do you transfer shares owners by someone who has died for more information.
7. Land ownership
Do you know whether the land is owned by you/a partnership/a company? This affects IHT reliefs and legal rights. This is particularly so if ownership is with one vehicle but operations carried out by another.
Please read our blog post on farm business and wills and tax planning for more information.
If the land and rural business has debts, will the heir be able to service those and retain the viability of the business. Are there other means such as insurance to plug any gap?
Please see our blog posts on family business plans for the future for more information.
If the business has diversified away from traditional farming activities, this may prejudice IHT reliefs. 49% of your business can be diversified, but this is a fine line and if you fall on the wrong side of the line you lose all reliefs. Bespoke planning can be done to mitigate this risk while still allowing for diversification.
Please read our blog posts on farms and estates diversification and inheritance tax for more information.
10. Separation and divorce
If your heir were to divorce or separate, family assets may leave the family. A pre or post nuptial or cohabitation agreement can ring fence family assets. If that conversation is not palatable you can leave assets not to your heir but to a trust for them.
Please see our blog post on divorce and cohabitation issues for the farming family for more information.
If you would like to discuss any of these matters, please do not hesitate to get in touch.