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THE PERILS OF IHT WHEN PASSING ON YOUR FARM

Ashley Partridge, Head of Wills, Probate and Estate Planning with Parker Bullen, talks about some of the issues around inheritance tax.

As all farmers know, farms tend to be family businesses and, as such, are passed down the generations, sometimes for centuries. It means passing on a business to the next generation is par for the course for many farming families.

The evolution of tax laws, though, means passing on the family farm is perhaps not as simple as it once was. Death duties can be traced back to 1694, with inheritance tax (IHT) famously used in 1796 to fund the war against Napoleon, while IHT in its modern form dates back to 1986.

Generally speaking, though, most farms are not liable for IHT, as if the farm is trading or used for agricultural purposes when it is passed on – which it most likely is – it becomes exempt. The same is true for many businesses. However,

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properties and other assets not used for agricultural purposes are liable for IHT. Because of this, families often get caught out, not realising they can leave IHT unfairly distributed amongst their offspring.

This is especially true where a farm has diversified into other forms of businesses which may, or may not, qualify for agricultural property relief (APR) or business property relief (BPR). If, for example, you leave your farm to one child and rental properties or other assets to another, the child inheriting the farm will pay little or no IHT whereas your other child could be hit by the tax.

So how can a family ensure IHT liabilities are spread evenly when a farming business is passed from parent to child?

Often three generations can work on the farm at one time, so it’s not unusual for the farm to be passed to those children that have been more involved in the farm than others, with the remainder of the estate left to their siblings. Even if finances are tight, a farm can be worth a significant sum, meaning that those who inherit the farm often inherit substantially more – financially speaking – than those who don’t.

If the farm is gifted by your Will free of tax, this imbalance can become more pronounced, as the children who inherit the IHT taxable share of the estate are also liable for any IHT due on the farm. This could mean that these children not only inherit a smaller amount, but that amount becomes smaller still once they’ve paid IHT.

A farming estate is rarely entirely tax-free, especially for those that have diversified into property letting, holiday lets or any other land uses that don’t qualify for APR or BPR. The application of APR and BPR can be complex, plus there may be restrictions on the value of the farmhouse as well as the ‘hope value’ of any land with potential for planning permission – all of which can affect whether you qualify for tax relief and/or the level of relief for which you qualify. Consequently, many families find themselves facing an unexpected tax bill. When making plans for your farm it’s therefore crucial to consider IHT carefully.

Many choose to establish a discretionary trust in their Will, under which chosen trustees manage the estate and assets after the owner’s death. Trustees decide who ultimately gets what and can be guided by a detailed ‘letter of wishes’, which is less legally restrictive than a typical Will. It can also let trustees divide an estate in terms of the owner’s overall intention, rather than through the ‘letter’ of the Will – which could be out of date and not reflect the latest changes to IHT.

Alternatively, you can make specific bequests in your Will, although you need to review your will and IHT positions regularly to ensure they’re up to date and relevant. The contents must continually reflect your intentions regarding how you’d like your assets split.

Estate planning can seem complex, but taking time to plan now can ensure your children are treated fairly and your assets distributed in the way you would like. Smooth transition of the business between generations is the ultimate reward for all the hard work you have put in.

PROTECTING AGRICULTURAL WORKERS’ WELLBEING

The largest wellbeing survey of its kind has been launched for the farming community in England and Wales by the Royal Agricultural Benevolent Instruction (RABI).

Amongst other aims, RABI’s Big Farming Survey looked to identify the physical and mental wellbeing of those working within the sector. Engagement with the survey has been high, and it is estimated that around 15,500 responses have been received. The fi ndings from the survey will be published this autumn, but it sparks an interesting dialogue about wellbeing within the sector.

The impact on farmers’ mental health and resilience has been highlighted in recent years by the challenges presented by Brexit and Covid-19. Agricultural work often involves long hours and lone working. Adding Covid-19 isolation and the cancellation of many events in the farming calendar to these existing issues has only added to the mounting pressures within the sector.

Like many business owners, those employing workers in the agricultural sector need to be aware of potential mental health issues amongst their workers. Employers have a duty to take reasonable care of the health and safety of their employees, which includes both physical and mental injuries.

Employers must also follow applicable legislation, including the Health and Safety at Work Act 1974 and the Management of Health and Safety at Work Regulation 1999. This legislation highlights an employer’s responsibilities, including carrying out regular risk assessments, ensuring health and safety policies are up to date and providing relevant training around these areas.

HOW CAN I PROTECT THE WELLBEING OF MY WORKERS? PROMOTE WELLBEING AND SUPPORT

It is important that agricultural workers know what mental health support is available to them, both internally and externally. There is a growing number of support platforms available within the farming sector and organisations such as MIND have resources available online. Focusing on off ering guidance and training to workers will help workers understand what options they have for support and will also help employers maintain a healthy workforce. Employers may want to consider arranging mental health awareness training or appointing mental health fi rst aiders within their business.

KEEP COMMUNICATION OPEN

Clear communication is key. Opening up discussions around mental health and wellbeing is especially important in a sector where there has historically been a culture of remoteness and resilience. Initiatives such as the Big Farming Survey should help to address attitudes within the sector and employers should create an atmosphere where wellbeing can be openly discussed and feedback is encouraged.

Employers should make sure they check in regularly with their workers and allow them the opportunity to raise any issues. Regular one-to-one meetings, even on an informal basis, will allow line managers to identify any potential challenges to an employee’s wellbeing or pick up on signs that an employee may need some extra support.

CARRY OUT RISK ASSESSMENTS

In line with health and safety obligations, employers should be carrying out mental health risk assessments to identify any stress risk factors. The Health and Safety Executive (HSE) has online templates and tools to assist with this, but completing the assessment shouldn’t be the end of the process. Once any stress risk factors have been identifi ed, these should be acted on and control measures put in place to reduce the risk of harm.

DEAL WITH ANY ISSUES PROMPTLY

Employers should make sure that any issues raised by workers surrounding their wellbeing are dealt with quickly and sensitively. Line managers should be aware of what processes to follow. Listen to any concerns raised by workers, and if they can identify what help they need this should be implemented if possible.

Understandably, within farming it can be hard to make adjustments such as fl exible working due to the nature of the work. However, employers should be mindful of their duty under the Equality Act 2010 to make reasonable adjustments for disabled employees. As the defi nition of disabled extends to those with a mental impairment, employers should make sure that they carefully consider a request for adjustments to assist an employee at work. This could include changes to working arrangements or responsibilities.

ENCOURAGE HEALTHY WORK HABITS

This could include making sure workers take their breaks and use their annual leave entitlement. It is important as part of any wellbeing strategy that employees are reminded to observe a healthy work-life balance wherever possible. Monitoring working hours can help identify those workers who may need more support to manage their workloads. One of the most important things you can do ABIGAIL BRIGHTWELL as an employer is to avoid seeing staff wellbeing Associate, Brachers LLP as a tick-box exercise. A comprehensive T: 01622 655281 wellbeing policy can be a useful tool in ensuring E: abigailbrightwell@brachers.co.uk that review of practices and their eff ectiveness is www.brachers.co.uk a regular and ongoing process.

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