Retirement – It’s Not All About APR – Harry Edwards (Gloucester)

I have recently been involved with a couple of clients and planning how to minimize Inheritance Tax when the time comes, but with the emphasis on making life easy.  So many are in the current situation of needing to remain an “active farmer” and be open to the element of financial risk to safeguard the APR on the land and the farmhouse.  This situation often arises when timely succession planning has not occurred or there is no younger generation to take on the trading of the business for a variety of different reasons.

One of the main questions I get asked is how we can retire and rent the farm out without incurring IT.  The answer to this is you can rent the land out and benefit from APR on the land, but you would then not receive APR on the farmhouse.  Given the rise in house prices it is often this asset that will create the greatest tax burden.  The route often taken in this situation is to operate in some form of share farming or contract farming arrangement.  If entered into for the right reasons these agreements can work well, if however, you enter it as purely a way to continue as an “active farmer” then this is unlikely to have the desired outcome for either party.  Often these agreements will result in the landowner swapping a few invoices with the contractor.  If as suspected, HMRC start looking into these agreements in more detail in the wake of Covid and balancing the books, then agreements like the above are unlikely to be accepted.

With input from their accountant who confirmed the various tax implications of different scenarios the way we have approached this is to rent the farm out to a young contractor who has been involved for the last few years.  The young contractor knows the farm, has a 10-year FBT on the land and buildings and knows the rent.  The landowner has a guaranteed rental income, sheltered from the rising input costs and variable profitability and also almost more importantly it is simple and not time consuming.  This releases their time away to enjoy in their well-deserved retirement.  To balance out the Inheritance Tax that would then be due of circa £400,000 they obtained life cover to that value at an annual cost just over £2,000 per year.  We all felt that this was good value and achieved the aims at the outset of maximizing the estate value on death whilst making the ongoing management and running as simple as possible whilst still providing a comparable return.

The above situation has been made possible by proactive succession planning over a number of years.  It is essential to get professional advice from a qualified tax accountant when making retirement or succession plans and dovetail these into the practical day to day running of the farm business.  Please contact Harry Edwards at harryedwards@fcgagric.com or your local FCG Office.