Successful succession – is your plan up to date?


With the farming population steadily ageing and a significant number of families facing succession changes in the near future, now is an important time to consider how the business may be passed down to the next generation.


Dan Knight, Dorchester


Though tax should never be the main driver for any business or succession decision, due to the magnitude of the value of assets often held by farming families, tax is a key issue to consider when formulating a succession plan. Careful planning can usually minimise or extinguish all exposure to Inheritance Tax.


Over the last few years there have been a number of key cases heard in the UK courts, once again moving the goal posts in areas such as Business Property Relief (BPR) and Agricultural Property Relief (APR). It is, and will continue to be, very important to keep up to date with these changes to ensure that plans remain robust and effective.


As well as Inheritance Tax, succession planning can also yield significant Income Tax benefits. Assets such as farmland, which are held within the family business, is often fully shielded from Inheritance Tax, benefitting from APR and BPR, and so do not necessarily need to be passed down to the next generation to avoid exposure to tax. Where the owner continues to take a share of the profits from the business, there is also an income stream that provides sufficient funds for ‘retirement’.


“It is possible that income from an off-lying property could be held for the benefit of grandchildren to save tax.”


6


In this scenario it can be very tax efficient to look at handing down other assets, perhaps off-lying let properties that may struggle to achieve Inheritance Tax relief under the ‘Farmer’ and ‘Balfour’ case precedents. The income generated by these properties may also be suffering Income Tax at the higher or top rates. By handing these properties down and surviving the appropriate amount of time, Inheritance Tax exposure is reduced and by diverting the income to members of the family that are paying a lower marginal rate of tax, significant tax savings can be made on an annual basis.


The use of a simple trust structure can also be beneficial. The value of the assets can be removed from the donor’s estate and the income diverted, whilst still retaining control of the assets by appointing appropriate trustees. It is possible that income from an off-lying property could be held for the benefit of grandchildren to save tax. The grandchildren could then utilise the income from the properties to fund their personal expenditure, perhaps school or university fees. In many cases, where the children have little or no other income, but do have full tax free Personal Allowances that all individuals benefit from, income can perhaps be taken via the trust effectively free of tax. In many cases this can give a route to paying the ever increasing costs of education free of tax entirely.


In summary, in order to maximise the success of your planning, ensure that you start early and do not leave it to the last minute. Careful, proactive and timely planning always provides significant benefits for the wider family. Finally, ensure that you continue to review plans that are in place to ensure that they continue to achieve what they were intended to.


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16