Jeremy's Blog 22nd November 2024: From Budget to Succession

This article by Jeremy Moody first appeared in the CAAV e-Briefing of 21st November 2024

Over three weeks after, the story of the Budget’s impact on farming is still running, even after the US election result and other events. Public sympathy stands. The media are explaining the practical issues in the Inheritance Tax changes better than ministers and gave Tuesday’s mass farming presence and lobby by 12,000 farmers in Whitehall positive attention. Over 6,000 Northern Irish farmers protested in Lisburn and 350 Orkney farmers met in their mart. And yet, the Chancellor has not responded to the request by the NFU President, Tom Bradshaw, for a meeting and slapped back DEFRA’s proposal to ease the initial lot of the very elderly. Ministers continue to say that 500 are affected when that annual figure, even if right, points more properly to 15,000 over a generation, before considering the cases hidden by spouse relief and pure BPR claims, never minding wider effects.

Continuing to talk with Treasury officials, DEFRA and other bodies, the CAAV analysis has been mentioned in Prime Minister’s Questions and reported in broadsheet papers and the broadcast media.

The underlying IHT changes, taking business owners’ capital for current public spending, also bear on privately owned businesses throughout the economy – professional partnerships, pubs, printers, undertakers, cider makers and more – 30 per cent of the UK economy. The agricultural angles come from the inclusion of APR and the high ratio of capital value to profit for owner-occupied businesses and so the financial realities of the tax charge, whether as a current cash call reducing the business or a large rent equivalent over 10 years. Both tend to crowd out the investment needed for productivity improvement and adaptation to climate change.

There are practical reasons why there have been agricultural reliefs from death duties for their 130 years, shielding farms (and now other businesses) from being broken up at the whim of death. The changes contradict good business planning rather than taking money when it is more available, as on a planned disposal, in better keeping with Adam Smith’s principles of good taxation.

Yet, we have to give good professional advice to clients in their myriad circumstances. There are starting points:

• we do not expect to see the legislation until next summer in whatever form it may be enacted, then giving, say, eight months for informed planning before April 2026 – yet the clock ticks for those thinking of Potentially Exempt Transfers
• there may anyway be a good restructuring of the land, business or both within the family which should be done, the Budget now giving an urgency to overcome inertia
• however, the decisions should not be tax driven – it is concerning that ministers suggest dispersing ownership to minimise tax rather than optimise the business
• there can be cases where starting the PET clock outweighs the risk of moving ahead of the legislation
• while reducing the risks of death’s roulette wheel, the young can die first
• identifying the asset owner’s objectives
• recognising that few, perhaps especially those just above the borderline for the new tax charge, have complete freedom for planning and some have even less – the widower in their 90s who is the sole owner of even a moderately sized farm
• the need for income and accommodation limits the ability to give assets with rules for gifts with reservation of benefit (and the Pre-Owned Assets Tax)
• some will need to afford the costs of care
• the available competent and compatible family members to involve in the business with issues that may force hard conversations
• where a tax charge has to arise, how it might be managed as and when it does, and its consequences? – as, say, for the finances for an intended 1986 Act tenancy succession application – again, future proofing the business
• is succession outside the family, as by letting the land, a better answer?

To pick up some misconceptions:

• the taxpayer is assessed on what the taxpayer owned less liabilities, not on the total business unless the two are identical
• the £1m relief is not transferable between spouses
• ministers’ suggestion that a married couple would have £3m of relief for the farm requires: them to have no personal effects or other assets so as to have the full benefit of the Nil Rate band each to have an interest in the farm business of at least £1m but not more than £2m to have the full effect of the Residential Nil Rate if they have lived in house and give it to a descendant – that could not usually be done with a tenanted farm house from April 2027, those rules are not breached by any unused pension fund, probably including a SIPP.

Ultimately, some may face making a choice of whether assets go to the Chancellor, family members or others but this is the chance to look properly at succession in good time for its business and personal merits and to help protect the farm and family capital that can give independence.

The Budget’s IHT changes add to the challenges to rural businesses. The agricultural valuer, seeing each client’s objectives, resources and constraints in these circumstances in the round, can support this process with perspective and good advice, helping the conversations find conclusions.