Scottish farmers urged to plan for the future despite inheritance tax fears

Farmers staged protests in over the changes to inheritance tax rules | Gareth Fuller/PA Wire

Changes to inheritance tax rules for Agricultural Property Relief (APR) and Business Property Relief (BPR) came into force on April 6th this year, implementing tax rises but also bringing a last-minute softening of policy which created much needed clarity for concerned farmers.

The original proposals caused outrage among the UK farming community, with many warning the plan to impose a 20% tax on assets worth more than £1m would destroy the sector, forcing asset rich but cash-poor farming families to sell up in order to pay the bill

After large-scale protests the threshold has been raised to £2.5m, with relief meaning a family can pass on a farming estate valued at up to £5m without being subject to inheritance tax if there are spouses or civil partners.

While that will be a welcome change for many farmers, it has still brought into sharp focus the need to start planning for the future.

Emily Pike, a partner at UK Law firm Brodies LLP who specialises in succession planning for rural business owners, said while it might be something they want to put off, farmers shouldn’t be afraid to start looking at what lies ahead.

“We carried out some research on this and we found that quite a lot of people really weren’t aware of what was coming, or don’t know what the changes mean for them," she said.

One of the most important steps to being prepared and putting a succession plan in place is making sure there is an accurate value of the estate.

“You can’t plan effectively until you know the size and shape of what you’re planning for,” said Emily.

Emily Pike, a partner at UK Law firm Brodies LLP who specialises in succession planning for rural business owners | Supplied

“Most of us can find out fairly easily what our personal estates are worth, but when you have assets that are valued in a more specialist way, and which may not have been properly quantified or plotted for generations, you really might not know where you sit.”

One of the biggest issues is looking at what relief farm estates qualify for. Farming businesses often qualify for a combination of agricultural relief - property or assets used for agricultural purposes - and business relief, which covers the assets of farming connected to the business.

“Diversification remains an important and often valuable strategy for many farmers and rural businesses, but landowners should understand the potential tax implications before proceeding,” said Emily.

“So if an area of land that was dedicated to farming is now a wind farm, for example, that could be called an investment asset, and that could affect the availability of relief.

“It’s something that all landowners who are looking at diversification projects should be aware of, and make sure they have properly considered the tax consequences alongside the commercial benefits.”

Emily said that while the final changes had brought the necessary clarity, concerns remain for many farmers. However she stressed that seeking good advice as early as possible can make a huge difference and help farmers to navigate the changes with confidence.

“For an awful lot of families the biggest concern - and it still is a concern - is that they will have to sell the farm to meet the tax bill.

“If the person who owns the land and the estate assets is elderly, and the land is worth a certain amount, their family is still likely to be facing a tax bill in the near future. There may still be opportunities to plan but they are likely to be more limited.

“The key is to start thinking about things as early as possible.

“In its broadest sense, succession planning is about thinking ahead and confronting what many of us don’t want to confront - that we are all mortal and there will come a point when what we own becomes the property of somebody else.

“We’ve had conversations with people over the last few months which have ended on an incredibly positive note, because they have learned that their estates aren't going to suffer an inheritance tax burden. That has been a great relief for many who were expecting major difficulties ahead.

“The key message is to be proactive and don’t bury your head in the sand. Until you ask the questions and get your circumstances reviewed you might not know if it’s an issue facing you and what options you have.”