Agriculture Relief and succession planning
By Chris Wright, Partner and ARA specialist
Cost represents a significant barrier to those looking to enter the farming sector but lack the capital to do so.
For this reason, the most common route to entry is a familial connection – typically by succeeding to a holding.
With many of the UK’s farming businesses family-run, it is vital that business owners plan their succession in advance and consider the impact that inheriting a farming business may have on beneficiaries.
Farms and succession planning
As with succession planning for any business, the first step is to conduct your due diligence and assess the financial health of your farm.
This includes identifying running costs, revenue and an honest assessment of any challenges you face or are likely to face in the future.
Building on this information, you can then begin to create a plan for transition, including:
- Who you will pass control of the farm onto
- Your expectations and any conditions
- Under what circumstances will the transition take place.
Financially, this is not the end of your considerations.
Inheritance Tax (IHT) will need to be a significant part of your planning if your family or other successor is going to take over your business in a tax-efficient way.
Fortunately, to support the UK’s farming industry and protect family-run businesses, most agricultural land is subject to Agricultural Relief.
Agricultural Relief
Agricultural property can be passed on free from IHT, either within the owner’s lifetime or as part of their Will – representing a significant saving for successful businesses.
‘Property’ here is defined as land or pasture used to grow crops or rear animals. It includes:
- Growing crops
- Land being used for growing crops
- Fallow land
- Farm buildings and houses
- Stud farms
- Short-rotation coppice trees
- The value of the associated milk quota
Farm equipment, livestock and harvested crops do not qualify for the relief and are subject to Inheritance Tax.
Most land and pasture used for these purposes is eligible for the relief at 100 per cent, as long as the person who owned the land either farmed it themselves, let it out for someone else to farm or let it to someone on a short-term grazing licence.
Business Property Relief
Farm equipment, livestock and harvested crops do not qualify for Agricultural Property Relief but may qualify for Business Property Relief if they are part of a commercial farming business.
Most land and pasture used for agricultural purposes is eligible for the relief at 100 per cent, as long as the person who owned the land either farmed it themselves for a least two years or let it out for someone else to farm or let it to someone on a short-term grazing licence for at least seven years.
We can advise you on where you may be eligible to claim relief on a farming business or business asset.
We can also help you to integrate tax planning into a wider succession strategy that will protect the future success of your business.
To find out more, contact us here.