Not Planning To Retire? Farmers Should Still Be Planning

• Published date: 23 October 2020
• Subject Matter: Tax, Inheritance Tax, Capital Gains Tax
• Law Firm: Charles Russell Speechlys LLP
• Author: Ms Hannah Connors

The University of Exeter's recent survey, commissioned by NFU Mutual, has found that less than a fifth of farmers plan on fully retiring. As a farmer's daughter, I am not surprised. For many farmers, farming is so much more than a job or career: it is a way of life, an identity, and often in their blood. The land gets under your skin as surely as the soil gets under your finger nails - and is just as deeply engrained...

That said, not planning to retire should not mean not planning for the future. This is particularly the case where it is intended that the farm be passed down to the next generation. While there are currently generous reliefs in place in the form of Agricultural Property Relief (APR) and Business Property Relief (BPR) to shield farming interests from inheritance tax, these reliefs have a variety of quirks, which are just as capable of tripping up the unwary farmer as an icy collecting yard on a December morning. It is crucial to understand (a) what impact a change or reduction in farming activity can have on APR and BPR and (b) sensible planning which can be put in place to protect and maximise the reliefs and enable the farm to be passed on to the next generation in good shape.

How do the reliefs work?

100% BPR is available on qualifying business property, which includes in this context, a farming business (operated as a sole trade or in partnership), unquoted shares in a farming business or assets used in (and held as assets of) a farming business provided such property has been held for two years and the business does not consist wholly or mainly of holding investments (i.e. it is a trading rather than investment business under the inheritance tax rules). 50% relief is available in relation to land or machinery owned personally but used for the purposes of the business.

100% APR is available on the agricultural value of qualifying assets if the assets are farmed by the owner or let on a tenancy that began on or after 1 September 1995, while 50% relief is available in other cases. Where the land is farmed 'in-hand' the land must have been held for two years in order to qualify for APR; where the land is rented out the length of ownership requirement is increased to seven years. In the event that assets are eligible for both APR and BPR, APR applies in priority to BPR, although BPR may be applied to the difference in value between the agricultural value of an asset and its market value.

Thinking of winding down or diversifying?

While the...