Shropshire Farming Talk: Careful planning is key to smooth succession

Diversification can open up new income streams, make the most of resources and assets and generate business opportunities for younger generations.

Holiday lets, farm shops, caravan storage and maize mazes are just a few of the many and varied ways in which farmers have branched out from traditional arable and livestock models.

But families should be aware that changing the way you use your land and buildings can have a big impact on any formal succession planning you have in place, particularly when it comes to taxes.

So, before you convert that empty barn, or start building glamping pods, it’s worth sitting down with your legal advisers to make sure you aren’t leaving yourself – and your loved ones – at risk of a hefty tax bill.

Firstly, you need to look at what tax reliefs and benefits you are already receiving. Agricultural Property Relief (APR) and Business Property Relief (BPR) can both protect your estate against inheritance tax, and both are popular amongst farming families.

But both have restrictions which, if ignored, could have big consequences in the future. For example, APR requires land or buildings to be used for agriculture – converting to a holiday let or storage unit might mean your building is no longer eligible.

Similarly, BPR usually requires your assets to be used for trading. That means any use which is solely for investment purposes, and which doesn’t require much routine work from you, might not qualify.

Losing these two exemptions could mean that the value of all of your farm’s assets might become liable for inheritance tax – and that can get expensive.

The key is to make sure you understand all the implications before you go ahead with any farm diversification. Knowing that one possible use for a building will affect your tax liability but another option won’t can help you make sure your business can thrive in the present, and still be a viable source of income to pass on to future generations.

There is no single template for how farming families should approach succession planning. Diversifying some parts of the business might be the best solution for your family, but individual circumstances can vary widely.

You might not be thinking of handing over the reins for years yet, but the earlier you sit down with your legal team and talk through your options, the more options you will have. Alternatively, contact me on 01743 266287 or sarah.baugh@fbcmb.co.uk to find out how proper financial and succession planning can help you.

by Sarah Baugh, head of the agricultural and rural services team at FBC Manby Bowdler