AIBU to think farms will just be left into Trusts

[HalloweenSmoke]

Most wealthy people don’t actually inherit their wealth it is held in a trust to avoid inheritance tax if there is an unexpected death.
Surely now farming families will just have to take legal/tax advice but will, like others, mostly be able to avoid paying inheritance tax.

If only it was that simple 🤦‍♀️

Why is it not that easy? I guess because that doesn’t fill a 10 page thread of woe is me wingers.

Trusts are subject to inheritance tax. They don't have tax advantages.

Why don't the farms operate as Limited Companies?

Leaving it to a trust still means IHT is due above in excess of any available reliefs allowance like Agricultural Property Relief and Business Property Relief.

Also subject to IHT up to 6% on distributions and every ten year anniversary.

Trusts still pay inheritance tax (with lots of caveats as to type of trust, how long they survive after creating trust etc etc). So it's not that simple.

The simplest trust arrangement, the will trust, often used to leave a property does not pay any IHT in the life beneficiaries lifetime, however when they die it is counted as part of their estate and taxed.

Other types of trusts have 10 yearly charges levied, and exit charges. they can be a really efficient way of spreading tax out, or deferring it, but they don't avoid it altogether.

Three quarters of farms are below the threshold and won't pay any tax anyway.

Or get life insurance

Life insurance can be helpful, but obviously life insurance companies do the maths to make a profit. So if you have a policy that is designed to pay out when you die and last for the rest of your life, it will be pretty expensive because the payout is guaranteed, it is just the timing that is uncertain.

If, on the other hand, you are referring to term life insurance, that pays out only if you die within a specified time (eg term of a mortgage or while your children are under 25) then yes it will be much cheaper because the likelihood of death is low, but it is only a solution for an 'unexpected' death during that period.

Why don't the ones above the threshold become actual businesses with the head of the family as the CEO? Wouldn't that work?

Well the other thing they brought into inheritance tax in this budget is businesses.

That’s what I’ve been wondering, why don’t farms run like businesses in that way? Businesses still own buildings or land, is there a reason this doesn’t happen?

I'm not from a farming background and probably misunderstand but it surprises me that most food production is left to family businesses and there isn't a national link up/plan. All other utilities -water, gas, electricity, broadband, are either run as large private businesses or nationalised. Food production seems so hotch potch in the UK and weakens our food security, leaving us more reliant on overseas imports. I'd like to see more support for farmers and protection of farmland. The budget decision was a poor one in my opinion.

Why don't the farms operate as Limited Companies?

Exactly, but I think greed is behind it in some cases.

I presume they would also be shareholders and you would pay tax when inheriting the shares. But you could pass them on a bit early and have a seven year life insurance policy to protect if you die in that taxable period.

Well, farmers haven’t needed to find other ways to pass on their farms until now because of the inheritance tax relief. Now that’s changing, I should think that most will look into alternatives, so that the change in policy won’t actually raise as much tax as the Chancellor hopes. But for some, there won’t be time to do that and they will be caught in a trap of having to sell land to pay tax, breaking up farms into smaller units, some of which will no longer be viable at all.

Posters saying about using limited companies or “businesses” to run farms - any transfer of land/assets/property will have tax implications, capital gains tax, stamp duty etc. And legal implications. It is not straightforward to move a farm into another trading entity. And then the farmer owns company shares instead of the farm, so there is then tax implications of owning those shares on death. There is no easy solution or work-around.

Holding the farm in a company doesn't reduce its value. Whoever owns the shares would still pay inheritance tax when they die.

If everyone dies in a nice tidy order, and around 7 years after they wanted to retire, then potentially yes, people can gift the family farm and hope to live 7 years/buy life insurance.

BUT

1. Death is unpredictable. That strategy won't help the family of a farmer who does unexpectedly young.

1. Not everyone can get life insurance - if there are genetic risks/ lifestyle factors etc it may be too costly.

1. Assuming that land values rise with inflation, and the farm has been owned for 20+ years, there would be a hefty capital gains tax charge on the gift and no money with which to pay it.

This is based on gov's own figures from APR usage in previous years, I've seen a chart on this twitter thread..
https://x.com/danneidle/status/1851984983423877585?s=46&t=JYlFerpmIAxXWSxVNfEFdw

They will pay half the rate of IHT that non-agricultural estates pay and they have 10 years to pay it (as opposed to 6 months for normal IHT).

Yes they have 10 years to pay but interest is due on the debt after the first instalment.

And with interest on amounts due to HMRC now hiked to 9% that is a significant amount of money.

Farms are "actual businesses".

If you mean Ltd companies there are a few reasons why that isn't always an attractive option. The cost of incorporation for one. And is still in the estate for iht

Yes I thought that was an interesting touch - rase the interest rate on unpaid tax and bring more into charge of iht at the same time, pushing more into paying iht by installment.