15th May 2023
Question: I own (freehold) 250 acres of agricultural land, buildings, and dwelling house. None of my children have any interest in farming. I wish to go to my grave knowing that all my land will be well farmed, and I have hand-picked a successor.
Can I will my farm to be sold to him at a 30% discount on today’s certified market value of £2.75 million? This professional valuation is to be linked to the CPI until my death. He is also to be given one calendar year after my death to pay my estate. The monies are then to be distributed to my children. Should this be achieved, will there be any IHT to be paid by my estate or beneficiaries or will the nil rate band still apply?
Succession planning is important for any family-run farm and especially relevant here, where there is no clear option to keep the business within your family after your death.
Given that your children have chosen not to follow in your farming footsteps, and that you have an understandable desire for your farmland, home and assets to continue in agricultural use once you are gone, I can see why you wish to explore the option of passing them on to a chosen third party.
In England and Wales, it is certainly possible to include an option for your chosen person to buy the farm at a discounted price after your death but please be aware it is just that – an option. The designated person can decide whether or not to accept and even if they seem willing now, you should be aware that feelings and circumstances can change over time.
I would advise you to think this through very carefully – including what may happen if things don’t go to plan. Have you thought about what would happen if your chosen successor dies before you, has failing health, is unable to come up with the purchase price by the one-year anniversary of your death, or simply doesn’t want to go through with the deal?
In any of these circumstances, the only option open to your executors may be to sell the farm on the open market. There is also the risk that your chosen person buys the farm at the discount and then immediately sells it at market value which he/she would be free to do. Under both scenarios, the risk is that your good intentions are not realised.
As far as Inheritance Tax (IHT) goes, an option in your Will to sell your farm to someone at a discount will not affect the amount of IHT payable by your estate on your death. The whole value of the farm at
your death (specifically valued for Inheritance Tax purposes) will still need to be declared to HM Revenue and Customs and any IHT paid.
Agricultural Relief, Business Property Relief and your Nil Rate Band (subject to any lifetime gifts you may have made within the seven years before your death) may be available to relieve the IHT payable in your estate, but a 30% discount on the farm purchase price is particularly generous and will no doubt have a significant impact on what your children end up inheriting.
The calculation you have mentioned for working out the sale price may not be realistic at the time of your death, which could be in many years’ time. The sale price for such an option is normally worded in such a way so as to relate to the value of the land for IHT purposes at your death, so it remains appropriate whenever death may be.
Given the risks involved, you may wish to consider other options that can be seen through during your lifetime. For example, I had a client in the past whose children didn’t want to farm and so he sold the farm on the open market in his lifetime to someone who wanted to continue to farm.
This would need a lot of thought and consideration by you and while my client in this case swapped assets potentially relievable from IHT for hard cash, which has no reliefs against IHT on death, he was able to choose the buyer, made money to rehouse himself, provided a decent income for himself and was even able to afford some decent gifts to his children.
Please note that I am a solicitor qualified to practice in England and Wales, and while the law in Northern Ireland shares much in common with principle and practice here, there are some notable differences attributable to the fact that Northern Ireland has its own Court system and legal and political history.
For any succession planning decisions, please take advice from a specialist familiar with the law where you live. I hope that whatever you choose, you find a reliable solution to your problem that gives you peace of mind about the future of your farm and family alike.
Thrings Private Client Team are highly experienced in supporting business owners in estate administration as well as succession planning, helping individuals, partners and families to successfully manage the transition in ownership in a straightforward and cost-effective way. Get in touch to find out more.