A trust can be set up during your lifetime or on death in your Will.
It is important to appoint trustees who understand how your farming business is run, ensure they are responsible and can act objectively.
The trust can provide an income for your beneficiaries.
It can also be flexible by allowing your Trustees to decide when and how to distribute assets between your potential beneficiaries depending on their circumstances.
What are the advantages of transferring my farming assets to a trust?
- Using a trust to manage farming land can be beneficial in allowing the land and any farming assets to remain together under the management of carefully appointed trustees.
- A trust also helps to protect the assets for your children and future generations. Often, it is difficult to predict which family members will be able to continue working in the farming business and how your loved ones' circumstances may change in the future. The trustees can assess the situation as time passes and act flexibly according to the best interests of the beneficiaries. You can leave a letter of wishes as guidance to your Trustees.
- It may also help to reduce the likelihood of disputes within the family if the Trustees can take into account the beneficiaries' circumstances before making decisions, rather than an outright gift of the farming assets over which you will no longer retain control and may no longer be appropriate.
- It can be more tax efficient forinheritance tax purposes to leave your farming assets to a discretionary trust on death rather than outright to your spouse or another non-exempt beneficiary such as a charity. Information about the claim for relief from Inheritance Tax in relation to agricultural property is detailed below.
What farming assets do I own, and will they attract Agricultural Property Relief?
As part of your estate planning and an assessment of your Inheritance Tax position, it is important to be aware of the extent of the land owned in your name and whether it will attract Agricultural Property Relief ("APR").
Agricultural property relief ("APR") is a relief from the Inheritance Tax granted under the Inheritance Tax Act 1984. The relief is available on the agricultural value of an agricultural property, which is transferred either in lifetime (which would be a gift) or on death.
Often, farmland has been passed down from one generation to another, and it may not have been registered with the Land Registry. After you have died, it can:
- Be difficult to establish which parts of the land are owned by you, and there could be disputes over the boundaries.
- Be problematic when assessing your estate for inheritance tax purposes and establishing the land which will pass into the trust in your Will.
- Cause potential disputes between your beneficiaries and family members.
After you have died, making these enquiries will increase the costs and time for dealing with the administration of your estate.
What is agricultural property?
Agricultural property means agricultural land or pasture and also includes:
- Woodlands and buildings used in the intensive rearing of animals if they are being used with agricultural land or pasture.
- Grazing land where you are responsible for the upkeep.
- Cottages, farm buildings and farmhouses, and any land occupied with them, if they are of a character appropriate to the property.
Importantly, the land does not have to be in the UK.
If you have agricultural land and property in the Channel Islands, the Isle of Man, or a European Economic Area, your estate can claim APR to reduce the tax bill.
Why is it important for you to be aware of APR now?
If you can make these enquiries now, it will help you to mitigate your Inheritance Tax liability and consider whether it will be beneficial to transfer your agricultural property to a trust during your lifetime or in your Will.
This exercise will involve understanding the extent of the land in your name, the purpose for which the land is used and obtaining a valuation of the land.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.