There is an increasingly elderly profile of farm ownership in the UK, and as a consequence, tax planning is needed around succession and potential sales of the whole farm – or even just the farmhouse.
Many farms are owned in joint names which can cause problems on succession or sale. In some cases the beneficiaries cannot afford to buy each other out. If one family member is unable to raise the finances to buy the interests of other members, selling might be the only option. Further, some family members will not want their shares to be bought by other relatives who can afford the opportunity. It is essential that such problems are considered well in advance through partnership agreements and open and honest discussions between the farming partners and the family.
If farms are held jointly by the farming partners, the strategy for what happens after one of them dies must be considered. A key problem that will present itself is what to do with any farmhouses. How the farmhouse is sold or apportioned can be a problem.
Currently, many farms are being gifted on death to non-farming siblings and children and this causes issues. Farms are having to be sold after probate to enable the business to survive. How the farm is owned is important for both capital gains tax and inheritance tax. There may be disadvantages if houses are lived in individually by brothers and sisters but are owned jointly by them and their siblings. There is much tax planning and legal preparation that needs to be undertaken by the family farming business now.
Joint ownership can jeopardise tax reliefs if farming partners live in different jointly owned properties. A possible solution would be to use a scheme of partitioning, under which each individual becomes the sole owner of the property they live in. This can produce some unfairness if, say, a person who is not intending to live on the farm is left a share of the farmhouse.
Some predict that many farms and farmhouses will have to be sold to enable the farming business to survive, or to pay out estate beneficiaries.
The tax consequences of all decisions need to be considered to ensure that a tax-efficient trade is maintained. When any farmer with joint ownerships leaves farming assets to non-farming beneficiaries it is essential to consider how payments to the beneficiaries will be funded.
With all the succession dilemmas that face elderly farming families, they must maintain a strong trading activity instead of falling into the trap of letting out property and reducing tax efficiency.
For further advice on this topic, please do not hesitate to contact me.
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