Let’s talk about death and money

SASCHA GRIERSON, PRINCIPAL CONSULTANT, SAC CONSULTING

The recent UK Budget and its changes to Agricultural Property Relief (APR) and Business Property Relief (BPR) has generated a significant reaction across our industry. The long-held ability of family farming businesses to pass land and assets on to the next generation upon the death of the owner free of inheritance tax (IHT) is gone.

It’s an emotive topic and, since last October, there has been a lot of back and forth between industry and government regarding the impact on the wider industry and the future viability of family farms. It can be difficult to disassociate broad industry impact from individual family businesses. Every farming business, and every financial position, is unique.

As we are now experiencing a higher taxation environment with our new UK Government, and with support for agriculture competing with many other sectors when it comes to the UK and Scotland budget, the outstanding question for every farm business should be “can my business afford to pay the tax?”, when it comes.

The supplementary questions then could be, what legal and sensible steps can any family farming business take to mitigate the impact of this tax, bearing in mind that the most sensible step may be, do nothing. A tax relief of 50% is still better than no relief at all for IHT. These steps must fit with your whole family’s vision for the future.

From April 2026, the first £1million of combined business and agricultural assets will remain exempt, but assets over this threshold will be subject to IHT at 50% of the full rate (i.e., 20% effective rate). In addition, the nil-rate band will remain at £325,000 until 2030.

Anti-forestalling rules, which came into force on the day of the budget, mean that if assets were gifted on, or after, 30 October 2024, but the owner dies within seven years, the £1 million limit still applies. It’s clear that these changes necessitate careful planning and professional advice to navigate effectively.

Data analysis by SRUC’s Professor Andrew Barnes using data gathered in the Scottish Farm Business Survey addresses the initial question of the affordability for farm businesses.

In a subset of 400 farms in Scotland with a turnover of more than £20,000 and which are representative of the 11,000 most productive farms in Scotland, 43% of those farms are affected. The potential tax bill every year for 10 years and the time allowed for payment of this tax for those affected farms ranges from 3% of their net profit to 37% of their net profit, or £1,800 to over £100,000 each year for 10 years.

To answer the second question about mitigation, it’s clear that careful succession planning has become ever more urgent for family farming businesses looking to take advantage of the seven-year rule, whereby gifted assets can become free of an inheritance-tax liability, if those gifting it live for seven years.

Succession planning has traditionally not been an easy topic for farmers in the UK. Insights from a UK wide report demonstrates the industry wide challenge:

• 1 in 4 farmers has not made a will

• Only 1 in 2 farmers has considered APR or IHT in their succession planning

• Only 1 in 3 farms with an identified successor has an actual plan

• Only 1 in 5 farmers intend to fully retire, 4 out of 5 plan to keep on working.

It suggests that, as an industry we have some work to do. There are many reasons behind these insights, some of which may have to do with the cultural difficulties of talking about death and money, not easy topics to discuss with your loved ones.

There is also the knotty question of retirement financial planning for the outgoing generation. The question is, can we afford to pass on a business that the older generation is still deriving an income from, and is there enough to go around to make succession a viable option for family members?

These issues form the content of current family conversations as they navigate these tough decisions. For many, it requires professional help to get the right conversation started and maintain the momentum to see it through. This could be seen as a family investment in a once in a generation passing on of the family farm, and akin to investing in a capital item to support business growth.

At SAC Consulting, we have supported many farming families to achieve a good succession. They can help to generate realistic options that are then taken to the accountants and solicitors to turn into the succession plan.

As a family, there are some key points to consider in this process:

• Start early, prepare for it to take time

• Have open, clear family discussions including a trusted advisor as a neutral party

• As a family, decide what you want before you go to your accountant and then your solicitor

• Nominate a family member as the main contact for professional support

• Focus on a tax efficient passing on of assets

• Make a will and nominate a Power of Attorney

• Aim for good (not perfect), and a fair (but not equal) split of assets - not everyone will get everything that they want

Get in touch: sascha.grierson@sac.co.uk