Succession and inheritance planning are the most important provisions any farming family can make when looking to the future and making arrangements for carrying on the farming business. A vital part of that planning is making a will.

A will is essential in any circumstance, but particularly where a farm and family business is at stake. On death, the way property is owned can influence how it is passed. Property can be jointly owned in one of two ways; as “joint tenants” or as “tenants in common”. 

If the farm is held as joint tenants, the deceased’s share will automatically pass to the surviving joint tenant(s). If, however, the deceased owns a share in the farm as a tenant in common, or they are the sole owner, they are free to leave that share to whomever they wish in their will.

What happens if there is no will?

Without a will, any solely owned property, or shares of property held as a joint tenant, will pass in accordance with the “rules of intestacy”, taking no account of the family dynamic, succession plans or business needs. This can risk the farming business becoming owned by those who were never intended to succeed, causing family disputes and complicated business issues.

Family farming disputes over a will

Indeed, farming land and assets are at high risk of becoming the subject of dispute and bitter family feuds because of the lack of valid or properly drafted wills in the agricultural sector. 

Claims often arise where children have worked for a small wage on the farm property for a number of years on the understanding that they will inherit the land and business on the death of their parent, only to find out that the intestacy rules or the wording of a will cut them out of the estate, or provide them with much less of a share than they believed they were entitled to. 

Situations can become further complicated when the deceased had more than one marriage, or children by more than one partner. Such disputes can, in some cases, even impact the viability of the farm, particularly where land has to be transferred or sold to resolve the issues.

How to ensure the deceased’s wishes of the farm business are kept

To ensure that the farm business passes in accordance with the deceased’s wishes and as tax efficiently as possible, an appropriate will, tailored to the farm and family’s specific circumstances and future plans for the farm and land, is vital. 

However, it is important also to ensure that a farming will does not contradict the farming business’ Partnership Agreement or Articles of Association, as these documents will often include clauses dealing with inheritance of farming assets held in the farming business. A conflict between these documents and a will can result in disputes as to whom assets should ultimately pass.

Inheritance Tax 

Agricultural wills can also be utilised to mitigate Inheritance tax. Inheritance Tax is payable by the estate of a person when they die if their estate is above the Inheritance Tax threshold, called the Nil Rate Band (NRB). The NRB is currently £325,000. 

However, sometimes Inheritance Tax is not payable even where an estate exceeds the threshold. This is because there are certain exemptions and reliefs available. One of these reliefs is Agricultural Property Relief (APR).  

Agricultural Property Relief (APR)

APR enables the owner of a working farm to pass on some, or all of the property, tax free either during their lifetime or in their will. Business Property Relief (BPR) may also apply where the deceased’s assets are held as partnership or business property. There are, however, strict criteria to be met for property to qualify for APR and BPR, so it is important to seek advice on whether farm assets qualify and to what extent.

What are Discretionary Trusts?

With the many issues to be considered, the preparation of agricultural wills can be a complex process. We often recommend that farming clients have wills that contain Discretionary Trusts.  

Discretionary Trusts are vehicles of flexibility with the advantage that they can be utilised to take into account family circumstances, business issues and tax legislation in force at the date of death rather than the date the will is prepared. 

Discretionary Trust wills also enable taxation reliefs, such as APR, to be “tested” upon the first death meaning the assets can often be safeguarded and passed down to the next generation free of tax so as to mitigate any Inheritance Tax that may be payable upon the death of the survivor. They can also be used to safeguard the farm and assets against divorce or financial difficulties within the family if necessary.

With careful lifetime planning, the application of reliefs and the use of Discretionary Trusts within the will, Inheritance Tax can be significantly mitigated and the negative consequences of not having a valid will avoided. 

However, it is important that proper legal advice is sought. Should you wish to discuss agricultural tax or succession planning, or require a will, please do not hesitate to contact us in the Agricultural Team here at Birkett Long.