The Family Farm - Succession and Inheritance Tax Planning
Farming businesses are often the principal family business. When they are passed to the next generation, there can sometimes be unnecessary tax, costs and even family disputes but careful estate planning can enable a smooth succession.
Inheritance Tax: What is it?
Inheritance Tax (“IHT”) is a charge on your assets at death. Each individual has a basic nil rate band (“NRB”), meaning that currently no IHT is paid on the first £325,000 of your estate. Once your NRB has been used up, the balance of the estate is charged at 40%.
If, on your death you do not “use up” all of your NRB this can be passed on to your surviving spouse or civil partner. This will increase the surviving spouse’s NRB and reduce their IHT bill. This can be a useful way in which IHT can be mitigated when passing the family business to the next generation.
Other exemptions and reliefs are available for the farming business owner. These potentially significant reliefs can be successfully applied with careful estate planning and can include Agricultural Property Relief (“APR”) or Business Property Relief (“BPR”).
APR and BPR: How do they work?
If APR and BPR are successfully applied they can reduce the amount of IHT, sometimes to nil. These reliefs are available for agricultural land and buildings, certain business interests and qualifying company shares. The extent of the relief will depend on the circumstances and you cannot assume they will apply in every case.
New Inheritance Tax Rules from April 2017: Residence Nil Rate Band
This will be an important change as individuals who die on or after 6th April 2017 could also be entitled to an extra NRB of between £100,000 and £175,000 if the family home is left to children or grandchildren.
It is important to note that this change will not automatically apply to every estate (even if your circumstances seemingly fit the criteria). Your ability to successfully claim the Residence Nil Rate Band will depend largely on your circumstances and how your Will is drafted.
The Importance of Regular Will Reviews
To ensure that you fully utilise the maximum reliefs available, it is important to review your Will. The distribution of family assets should also be reviewed to ensure that you retain control over who should benefit from savings, property and personal possessions and how the family business might be preserved for future generations – either in value or as a viable and sustainable business for your children and grandchildren. If you haven’t reviewed your Will recently (or indeed have never made a Will before) then really, now is the time to do so!For further information relating to this article, please contact Antonia Moore, Associate Solicitor located in our York Office.
Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.