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Farming Succession and the impact of the Autumn Budget 2024
The autumn budget has come as a shock to many farmers who may now face a significant Inheritance Tax bill if they die after the 6th of April 2026. From then, the 100% Business Property Relief and Agricultural Property Relief will vanish. There is though time to prepare and there are steps you can take to reduce the bill your family may face.
You will still be able to make use of a Nil Rate Band of £325,000 which could be combined with your spouses to give a total of £650,000. You will then have an Agricultural Property Relief Allowance of £1 million. The effective rate to pay IHT on the rest of your Agricultural property is 20% (40% less a relief of 50%)
As a married couple, you could increase the amount you leave without paying tax by a further £1 million provided that you construct your Wills carefully and make sure that £1 million of agricultural property is passed to the next generation on the first of your deaths. If you do not use your Agricultural Property Relief each of your deaths one allowance will be lost.
Not every couple will be able to afford to lose £1 million worth of their spouse’s assets. If that is the case, then you could think about leaving the property into a Discretionary Trust instead so both your spouse and the next generation can benefit. Although there are some costs and time commitments in running a Discretionary Trust, given that the Inheritance Tax you will expect to pay on £1 million worth of agricultural property is £200,000, that expense is likely to be well worthwhile. You will need to seek individual legal advice to work out what the best option for you and your family is.
You may want to try and save more tax by strategically making gifts to the younger generation over the years. Your first priority is to provide for your own needs, but the reality is that at the age of 70, you probably need less by way of income than you did when you were 50. As such, you may find it easier to make gifts as life goes on. If you give away property before your death and then survive seven years it will, under current legislation, be disregarded for Inheritance Tax purposes, however, do bear in mind that there may be a CGT bill instead. Do remember though that if you give away as an asset it will only count as a gift if you give away all the benefits that go with it. You cannot just transfer the legal title but then continue to receive the income from the crops produced or rent received. Once you give it away you will lose control of the land entirely and there are circumstances where through no fault of their own the children may lose control as well, for instance, if they were to die before you, divorce or fall into debt.
If your spouse has died in the last 2 years leaving the farm to you, you may like to discuss the option of a deed of variation to pass some farming assets on to the next generation now. This could be a significant tax saving.
Over the next few years, you will all devise strategies for surviving the new environment. Whilst the increase of tax is a huge shock to the sector, selling up may not be the best option for you. If you turned your agricultural assets into money in the bank or stocks and shares the chances are they would be taxed at a 40% rate without the benefit of the £1 million Agricultural Property Relief. You would lose the option to pay in ten yearly installments and if any tax were to be paid late interest would be added. As such, agricultural assets remain an attractive investment option.
It is more important than ever for you to discuss your plans for the future with the next generation and then work with all your advisors – solicitors, accountants and land agents – to work out the best strategy for your family. Regular thought and action will be more valuable to you and your family than ever. We would be happy to meet up with you to listen to your personal circumstances and help find the option that suits you and your family the best.
Emma Morris, solicitor at our Malton office and Sharon Richardson, Head of Private Client team based at our York office, have both spoken to farmers about this in November 2024 at NFU/GSC Grays business resilience events about estate planning and the impact of the Autumn Budget 2024 decisions on farmers and farming businesses. Please contact one of them for help and advice if you are involved in a family farming business.
