The changes proposed for inheritance tax (IHT) and business property tax relief (BPR) in the budget at the end of October have understandably caused a lot of anxiety, commentary, lobbying, demonstrations and protests.
Organisations representing the interests of farmers and owners of agricultural land, such as the NFU and CLA, have been very active speaking to government and trying to negotiate ways of mitigating the impact of the proposals. This has ranged from cries of ‘Wiping out family farming as an industry’ through to ‘right idea, wrong way of going about it’ type of comments.
Some changes to the relief given to farmland from IHT was expected in the budget, it was perhaps the amount of change announced that was not anticipated. To the credit of the industry, there have been a wide range of views expressed about them, not just by advisers, but by people running farming businesses. These views go from the ‘how dare they’ through to more pragmatic ‘we accept some changes are reasonable, but why can’t they be…’ and ‘businesses can plan to manage this’.
Very few people are pleased when something that was ‘free’ becomes a ‘cost’, and many also consider farmland to be ‘different’ to other types of business asset. Should it be?
‘Asset rich but cash poor’ is the way farming in this country has often been described. Whilst this is generally true – does that make for agriculture continuing to be made a special case when it comes to taxation?
Thresholds for taxation and actions are available that can be taken to minimise or avoid liability. The downside of this being the need to perhaps employ a financial adviser to help navigate through the options.
This begs the question, why have a tax that doesn’t need to be paid if there are work-arounds on offer? Is it better to have a tax, set at a fair level (whatever that is!), which a person or business can expect to pay as they cross various thresholds for liability?
If we assume the principle of liability is here to stay, though details of when and how much is payable may alter; what is the best mindset for farming businesses to have?
Here are a couple of general suggestions to contemplate.
Is it sensible to review the legal status of your business? Sole trader, partnership, limited company, charitable trust?
Is it sensible to review the structure of your business? One business, or several? Ownership of each business, individual, couple, or family?
Such decisions will often be influenced by individual or family personal circumstances, ages and interests. These are equally, if not more important than following a line of advice prejudice towards having the lowest possible tax liability.
A business needs to be profitable to survive, but running a business should be fulfilling and enjoyable. Not necessarily every day! But if it isn’t when considered in the round, change may be a good thing.
Many farmers well appreciate the privilege of having more than a house and garden they can call their own. With ownership, comes responsibility – and this too is well appreciated and embraced by most farmers.
This leads us to also considering the position of tenants, or those who work land that is rented out. What are their aspirations? Many would undoubtedly like at least a chance of owning land; or owning the land they currently rent.
The festive season is perhaps as good a time as any to have an open and honest family discussion – then invite the people who rely on you for either all or part of their own livelihood round for a chat about how they see their future.
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