Succession and the Budget 2024: How do we talk about death and money?
The recent UK budget and its changes to Agricultural Property Relief (APR) and Business Property Relief (BPR) has generated a significant reaction across 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 is gone. We now must pay much closer attention to how we do this as individual farming businesses.
And so, we turn to succession planning, which is often a sticking point of farm business management. Is the solution as simple as encouraging the older generation to hand on the land and business assets to their successor (if they have one) in plenty of time, survive seven years and the problem retreats from view? The reality is more challenging and has to do with interconnected and conflicting tensions about money and property that can, in some cases, pull at the heart of a family business and even at precious family relationships.
The current landscape: Where are we now as an industry?
A recent DEFRA report tells us:
- One in four farmers has not made a will
- One in two farmers has not considered APR or Inheritance Tax in their succession planning
- One in two farmers does not intend to move house on retirement
- One in four farmers has not discussed their retirement with anyone
- Two-thirds of farms that have identified successors still lack a formal succession plan.
- One in four livestock farmers has no retirement financial planning
These statistics provide us with a backdrop for action and should serve to focus family farming minds on to business viability into the next generation. A large tax bill is a less-than-ideal start to a next generation’s entry into farming. Navigating this as a family can, of course, be challenging. It is easy to retreat into the solid reality of farming work and avoid the demanding task of talking about the future.
What are our biggest challenges?
Reflecting on the numbers above, it’s apparent that several factors contribute to the difficulty of succession planning in farming. These include the emotional complexities of discussing death, money, and family relationships. How do families address the older generation’s retirement income and housing needs, and leave enough money and resource in the business for the next generation to support a viable business?
Practicalities: What is the impact of the Inheritance Tax change?
The recent changes to Inheritance Tax, particularly the cap on relief available under APR and BPR, have significant implications for the farming industry. From April 2026, the first £1million of combined business and agricultural assets will remain exempt, but assets over this threshold will be subject to Inheritance Tax 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 come into force immediately, mean that if assets are gifted today but the owner dies within seven years, the £1 million limit still applies. These changes necessitate careful planning and professional advice to navigate effectively.
These changes are likely to impact a substantial proportion of farms, particularly in Scotland, where land values have continued to climb in recent years
Steps to start effective succession planning
To address these challenges, making succession planning part of your regular farm business planning can help to normalise it.
- Start early: Get going and prepare for it to take time. It is a significant financial and time investment in the family’s future - but it only happens once in a generation. Keeping this context front-of-mind can help keep focus and commitment to the task.
- Open discussions: Be open, clear, patient, and kind in family discussions about the subject. Involving a trusted advisor as a neutral party can help facilitate these conversations to get to a solution.
- Individual and collective decisions: Encourage family members to express their individual wishes and then collectively decide what is feasible for the family. Do this before involving accountants and solicitors to ensure that the family’s collective wishes are prioritised.
- Nominate a lead: Designate a trusted family member as the main contact for both the family and professionals. This can save time, reduce cost, and provide consistency throughout the process.
- Focus on tax efficiency: Aim for a tax-efficient transfer of assets. The goal is a result that is fair but not necessarily equal.
- Make the will and create a power of attorney
The role of the advisor
At SAC Consulting, our experienced advisors have supported many farming families to achieve a good succession. If they have two overarching tips to impart, it is:
- Keep talking
- Be prepared for a ‘fair not equal’ split of assets
They also say, “Adopt a lose-lose, mindset” – no-one will get everything that they want.
Advisors who understand agriculture play a crucial role in supporting farming families in this process. They provide one-on-one, and family support and guidance, and coaching and mediation, acting as neutral parties to help families arrive at realistic solutions. Advisors can also ensure that plans get into place effectively by co-ordinating with legal and financial professionals.
Succession planning is not easy, but the recent changes to Inheritance Tax underscore the importance of proactive planning. By starting early, engaging in open discussions, and seeking help, farming families can navigate its complexities. This approach will help secure the future of the farm but also ensure that the legacy of hard work and dedication is passed on to the next generation.
For more information and support on succession planning, contact email Sascha.Grierson@sac.co.uk or call 07557 661 316.
Posted by Sascha Grierson on 13/11/2024
