There is an age-old argument about whether timing is an art or not, but for some it can also come down to luck.
Whatever label you care to give it, many in the farming community may well now be pondering when is the right time to hand over the reins to the next generation. And there are currently added layers of complication to factor in to what was already a difficult decision.
Life for all of us is full of unsolicited warnings and offers, mostly on our phones, but here is one for farmers and landowners. If post-Brexit issues weren’t enough to be getting on with in the sector, then minds are now being exercised by potential tax changes as a result of the current Covid crisis.
With the UK budget deficit set to hit £400 billion this year all eyes will be trained on the Chancellor in March when he delivers his next budget. Every sector across the business community will be nervously waiting for possible tax raids to bolster the government’s coffers as the pandemic bill escalates.
The farming community is no exception and for those considering sale and retirement, or simply handing on the business to family members, now might be the right time to act. The current tax climate is relatively benign in the agricultural sector and any looming changes, should they materialise, are likely to be brought in to help pay the Covid bill. Farming reliefs may presently be viewed as generous, so there is perhaps an argument for acting now while the rules are known and favourable. Certainty is a welcome state of affairs to anyone running their own business.
I am not suggesting that Agricultural and Business Property Reliefs will be abolished, but there is a very good chance that the threshold to access these reliefs will be raised. Likewise, the Office of Tax Simplification’s recent report on Capital Gains Tax reform recommends substantial changes to the current regime, the effect of which would undoubtedly have a profound impact on how and when assets are gifted or sold. As an added warning any further devolution of taxes could also lead to more change, so is now the time to act?
It is crucial that farmers review their business structures and the nature of their business to ensure they are eligible for all available reliefs, while they still exist. Farms must remain trading businesses not investments and professional advice on set up and structure is vitally important.
If a farm is to stay within a family then communication is the key element of any succession planning. Given land values, it is very difficult to offer equality to two siblings if one cannot afford to buy the other out. If both remain in the business then the following generation, possibly with greater numbers of family members involved, face even more complications. Professional advice on succession planning can save not just money, but heartache and family division.
Far fewer farms are put on the market for sale these days and there are strange distortions in value when they are. In one recent case in which we were involved there was a £200,000 differential from the winning bid to the second placed would-be buyer. And the likely reason for this is easy to identify.
A major factor which draws in purchasers from outwith the sector is that the super-rich are buying up land because it does not attract inheritance tax. The yield from countryside interests may be less than could be earned on the stockmarket, but the tax regime is hugely efficient and this is undoubtedly driving prices higher and restricting availability to those from traditional farming backgrounds.
The market is enjoying tax certainty for now, but there are no guarantees that this will continue. For farming families future planning should now take on an added urgency and leap up the list of priorities. Minds will certainly be concentrated ahead of the Chancellor’s Budget next Spring – March 2021 could be a defining moment for the agricultural sector.
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