The future of farming: keeping divorce out of the courts
Passing the torch: Is now the time to gift the family farm?
The question of when to pass down the family farm to the next generation is often a difficult one to answer; with many aspects to consider it is easy to see why it’s a topic often avoided by those in farming families. However, having a plan in place is the most effective way to safeguard the future of your farm and ensure a smooth transition when the time comes to hand over the reins.
A common query from our clients is whether a gift should be made during lifetime or otherwise left until death, and timing is an important factor to consider. Handing over significant assets too soon can cause difficulties for a number of reasons. For example, is the recipient truly committed to pursuing the family business / trade? What are the tax consequences; might the gift inadvertently trigger a charge to Capital Gains Tax (CGT) or leave an unpalatable exposure to Inheritance Tax (IHT)?
Nevertheless, there might still be good reason for considering gifting some or all of the family farm or farm business sooner rather than later; a legal advisor can help you assess the financial implications of the timing of your gifting, as well as advise on the discussions you need to have with your family around the broader succession planning process.
More broadly, we are all aware of the uncertainty looming about the future of farming. Could this uncertainty be an opportunity to accelerate succession plans?
Things to consider
Land prices as well as property prices may well be lower now than they have been in the recent past and so the value of the gift might well be less than it has been or may be in the future. This could mean that the value of the gift that lingers in your estate for the next seven years is lower than the value that it might be at any point during that period.
The impact of political uncertainty on agricultural reliefs
It would be sensible to consider taking advantage of IHT reliefs such as Agricultural Relief (AR) and Business Relief (BR) whilst these reliefs are still as favourable as they are; there is a chance that a change of government arising as a consequence of the UKs departure from Europe could jeopardise these reliefs.
The Basic Payment Scheme
With the changes being introduced to the scheme in the Agriculture bill, the agricultural sector will need to diversify income streams and innovate farming practises to maximise income. Innovation is likely to be critical to the success of post-Brexit farming and therefore needs to be encouraged. What better way to do so than to incentivise the next generation by giving them ownership and control of decision making. Gifting to the next generation, may well incentivise innovation to help the continuation of long standing family businesses for years and generations to come.
Ensure you are ready
There are therefore many reasons why now might well be a good time to consider passing on the family farm to the next generation. Any proposal to do so, needs however, to be carefully considered in order to ensure that problems do not arise.
Like with any gift, a balance needs to be struck between giving and retaining sufficient for the future so as not to leave yourself short. It will be important to avoid inadvertently triggering a charge to tax if the gift is not given in the appropriate way. Likewise, what will the effect of gifting be on the family dynamic if one child is treated more favourably than another?
Gifting might or might not therefore necessarily be the right thing to do but is certainly something which should, in the present climate, be considered given so much uncertainty about the future. It is always recommended that professional advice is taken when considering any sort of gift to highlight the benefits and challenges that may arise.
This article was first published in the March 2019 edition of South East Farmer.
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