Farming – December 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 6th April 2026.
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 £1million. The effective rate to pay IHT on the rest of your agricultural property is 20 per cent, 40 per cent less a relief of 50 per cent.
As a married couple, you could increase the amount you leave without paying tax by a further £1million provided that you construct your wills carefully and make sure that £1million of agricultural property is passed either to the next generation or to a discretionary trust on the first of your deaths.
If you only use it on the second death one allowance will be lost. Given that the Inheritance Tax you will expect to pay on £1 million worth of agricultural property is £200,000, some rearrangements may be worthwhile.
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
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.
There may be a Capital Gains Tax bill instead.
If your spouse has died in the last two years leaving the farm to you, you may like to discuss the option of a deed of variation to pass some farming assets on the next generation now. This could be a significant tax saving.
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 to formulate the best strategy for your family.
Contact Emma Morris, solicitor at the Crombie Wilkinson Solicitors Malton office for help and advice on this if you are involved in a family farming business.
