Financial and legal experts have reported seeing an increase in farmers seeking advice and support over the shake-up in inheritance tax.
Some farmers have expressed concerns that younger generations may need to sell land or buildings to pay tax bills, leading to farms that have been owned by the same family over many years being broken up, firms reported.
Experts also suggested that younger generations may end up receiving farming assets sooner – within their parents’ lifetime – as families plan for the changes.
Thousands of farmers marched on Westminster on Tuesday in protest against the Budget changes, which include inheritance tax changes for farming businesses, limiting the existing 100% relief for farms to only the first £1 million of combined agricultural and business property.
The measures announced by Rachel Reeves have upended many people’s financial plans and therefore since the Budget we have been very busy
Jason Hollands, Evelyn Partners
Wealth management group Evelyn Partners said it has seen an uptick in inquiries from farmers seeking advice after the changes were announced.
Jason Hollands, managing director of Evelyn Partners, said: “Changes in the Budget as to how certain assets are treated for inheritance tax have been a major source of concern for both existing and potential clients, especially in relation to the treatment of pensions, but also for business owners and farmers, too, due to the capping of reliefs.
“The measures announced by Rachel Reeves have upended many people’s financial plans and therefore since the Budget we have been very busy helping people understand the implications of these measures and explore their options.
“Restrictions on agricultural property relief are particularly challenging for family-owned farms, as while the value of the assets in terms of land and equipment are superficially high, income from farming is not, leaving their families with the prospect of meeting very high tax bills when they die with limited resources to meet the costs other than by selling off land and breaking up farms that, in many cases, have been in the same families for generations.”
Sean McCann, chartered financial planner at insurer NFU Mutual, said: “Agricultural property relief is in place to protect British agriculture and ensure family farms are not broken up when they’re passed on.
“It enables farmers to invest in their long-term future with the knowledge their family farm is sustainable for the next generation.
“We’ve seen a growing number of farmers wanting to know how the proposed changes will affect them and their families.
“Many are concerned their successors may need to sell land or buildings to pay an inheritance tax bill leading to smaller, less efficient farms as a result.”
These are undoubtedly extremely worrying times for farmers and there is a strong feeling within the rural community that the tax changes simply do not reflect the reality of what is required to sustain a viable farming business
Iwan Williams, Michelmores LLP
Iwan Williams, a partner at Michelmores LLP, which has offices in London, Bristol, Exeter and Cheltenham, said: “These are undoubtedly extremely worrying times for farmers and there is a strong feeling within the rural community that the tax changes simply do not reflect the reality of what is required to sustain a viable farming business.
“Faced with impending change, advisers have been considering what comes next, and how to plan ahead.
“There are options. Valuable estate planning tools remain – the ability to gift assets in the hope of surviving seven years, structuring assets efficiently to maximise reliefs, and life assurance, to name a few.
“Farming families are going to have to carefully consider how and when to pass assets to the next generation – not easy, and there is a difficult balance to be struck between tax efficiency and retaining sufficient control and comfort in retirement.”
Inevitably, children are going to receive farming assets sooner, during their parents’ lifetime
Ingrid McCleave, DMH Stallard
He added: “Succession is often a delicate subject for families generally – conversations are put in the ‘too difficult’ pile – but the timing of robust business succession planning has never been more important.
“We are helping to guide families through their options for mitigating this new challenge, to help ensure that viable farming businesses can still be transferred efficiently in the right circumstances.”
Ingrid McCleave, a partner at DMH Stallard, which has offices in London, Brighton, Gatwick, Guildford, Hassocks and Horsham, said: “I have had clients starting to book meetings to discuss the changes to agricultural property relief.
“Whereas, planning was mainly via wills or lifetime trusts, it is going to very much now be lifetime planning, lifetime gifting and use of family investment companies where the value of the parents’ shareholding is frozen and future growth is held within the children’s shareholding, thereby mitigating the parents’ exposure to inheritance tax.
“Parents can decide how much control to give their children with bespoke shares.
“Inevitably, children are going to receive farming assets sooner, during their parents’ lifetime.”
Hayden Bailey, head of private client and tax at Boodle Hatfield, which has offices in London and Oxford, said: “The reforms make no distinction between a working farmer and the viability of their farming operations on the land and a long term investor in land as an asset class.”
He added: “Older landowners who have historically been advised to hold onto land until death may not have enough years left to make plans to transfer ownership to the next generation…
“We expect to see landowners approaching the firm for help and advice following the announcement, but where profit margins are often very tight and the older generation rely upon taking an income, the succession planning opportunities can be limited, which could lead to sales.”
Karen Perugini, a partner in the succession and tax team at Thrings, based in Romsey, Hampshire, said: “We have certainly seen an increase in inquiries from our farming clients since the Budget announcement, with many clearly nervous about how the change to the agricultural property relief is going to impact the future of their businesses in the hands of the next generation.
“The biggest question we have been getting is simply what it means for their business, but for many their queries are around succession planning and how they can restructure their business and their estate to maximise the remaining benefits of the relief.”