The OTS and APPG impact on farm succession planning

Succession planning must be looked at in the context of the Office of Tax Simplification (OTS) reports, the Agriculture Act and the All-Party Parliamentary Group for Inheritance & Intergenerational Fairness (APPG IIF) changes and their impact on farm tax. These OTS and APPG suggestions have now been sidelined but are worthy of consideration.

As part of all farm succession planning, proposed changes to farm tax have to be considered. The APPG was established in February 2019 to promote understanding of the issues generated by inheritance and intergenerational fairness issues and to facilitate discussion on methods of reform. The members are drawn from MPs, peers and professional advisers.

The suggested rate of Inheritance Tax (IHT) by the APPG is 20% for estates worth more than £2 million. It is quite common for medium-sized farms to be valued at around £10 million, especially where there is ‘hope value’. In addition, the OTS suggested increasing the trading to investment ratio at 80%, ie there must be more than 80% of trading compared to investments in the farming operation (see 1.21).

The farming Wills that do exist should incorporate IHT planning, full succession planning, trying to take account of the farming partners needs and the continuation of the business (see Chapter 3). The idea of a rushed COVID-19 farm Will goes totally against all the work that should have gone into the farm succession planning. However, if a farmer does not have a Will, this also raises problems. Starting discussions about the future helps to manage potential conflict between different family members. Depending on the family and the farming business, it might be necessary to put formal structures in place to govern who runs the business when the unexpected occurs, such as a global pandemic, and how information is communicated between farming family members in future.

This brings everything full circle to the need to tie farm Wills into partnership agreements and IHT planning. A key planning point will be the link between the surviving spouse exemption, APR and BPR, the expectations of the partners together with the APPG proposed changes.

Whilst the proposed changes by the OTS and APPG have been shelved at the time of writing, they cannot be ignored for succession planning as to where the direction might go.