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 farms were limited companies, could they be limited by guarantee rather than by shares, if the share part is what is subject to IHT?

Farmers would as director / owners pay themselves salaries and could claim business expenses but not pay themselves dovodends. Would that help?

No.

IHT is charged on 'transfers of value'.

So it is charged on anything that had value in the estate of the deceased person (or, if a gift during life, by the loss of value to the estate caused by the gift).

Then there are various reliefs and exemptions, some based on what the asset is (farm, shares in an unlisted trading business) and how long you have held that asset (to stop death bed planning), some based on who you leave it to (spouses, charities and, funnily enough, political parties , are exempt).

IHT is also charged on gifts into trust, and once it is in trust, on the value within the trust at 10 year intervals.

I’m assuming that’s how all privately owned businesses that are passed down through families operate?

Farms are a business, I wasn’t aware until now they didn’t operate as a limited company so I’m still unclear why having to work under the same rules as other family owned businesses is such an issue, yes it’s a change but all businesses need to adapt to change.

I’m not convinced of why there should be a work-around for one type of business and not another.

I know people above have said that trusts would incur tax but what if the asserts are kept such that the individuals only ever rent from the trust and that it's never given in full to a beneficiary? Surely then it wouldn't be an asset for the sake of tax?

Farms are actual business and they operate under a variety of different business styles and some use more than one styles.
There are big farming business like Gs - they produce all the lettuce for MacDonald's and pretty much all the celery in the Uk they are a large family owned company with a CEO similar to Mars.
There are smaller limited companies, partnerships and some traders. They all have tax advantages and disadvantages. Some family farms operate several business models for tax purposes my family farm had a partnership and a limited company.
There are complexities as often there is residential property involved and a significant number of family farms are actually tenants.
To the poster food production brings in a wide number of hands is actually to our advantage as different farms do things slightly differently which means that Farm As method this year might not work so well, but that us balanced out as Farm Bs method has done better. Plus we get a wide variety of products not just what a single large conglomerate thinks or decides you want. Though that is still subject to supermarket power, my family farm grew Chartenay carrots in the 1980s took them to Tesco as an idea, but brushed away as the housewife wants long think carrots ( less tasty) took 20years for them to realise that people will pay a premium for tasty carrots.
So many products you buy are from individual farms having an innovative idea to add value to their product. We have a bigger variety of cheeses now in the UK than France due to this.
Totally of the point of inheritance tax, but need to dispel the myth that farmers are yokels with no business sense.

Sorry lots of spelling mistakes.

"I’m assuming that’s how all privately owned businesses that are passed down through families operate?

Farms are a business, I wasn’t aware until now they didn’t operate as a limited company so I’m still unclear why having to work under the same rules as other family owned businesses is such an issue, yes it’s a change but all businesses need to adapt to change.

I’m not convinced of why there should be a work-around for one type of business and not another."

Not all family businesses are limited companies - far from it. I would say most farms are run as partnerships, just like lots of other businesses are.

Incorporating a business can be a good thing to do, from several angles - but also can be a bad thing to do. The tax burden paid by a Ltd co, and then its directors on salary/dividends can be much higher than on the partners in a partnership. And when margins are tight, that can make a significant impact on the ability for the directors to take a salary.

And that's before you look at the costs to incorporate. For a lot of farms that cost would simply not be affordable.

Yes it would be. Discretionary trusts (which is what you are describing, more or less) are called 'relevant property trusts' for tax.

There is a tax charge on placing assets into trust, whether during life or at death, and then there is an inheritance tax charge every 10 years.

www.gov.uk/guidance/trusts-and-inheritance-tax

If your turnover is low that would be an expensive proposition - most farmers make very little money, and certainly not enough to justify being a limited company

Operating under a limited company, you would still have the exact same issues. They have restricted APR and BPR to £1 million. If you have a farm worth £5 million, you will now need to pay IHT of £800k, whereas before it was nil.

Whether you are left shares in a limited company or a partnership share and/or the land directly, you still need to find that £800k. The business structure has absolutely NO impact on the IHT payable, so comments such as "just operate like other businesses" are irrelevant.

This Budget has actually had the same impact for all businesses.

The main differential is that in terms of other businesses, if there profits each year are saying £1 million perhaps a manufacturing business, then the business may be worth saying £5 million so a multiple of 5. For a farm, the return on capital employed is far far less, so it might only be say 1/2% (if they are even profitable) meaning the profits might be £50k/£100k and the business is still worth £5 million.

Previously the manufacturing business shares could also be left IHT free so they will now also have an IHT liability. The big big difference though is that the farmer is much less profitable to try and find that money or even borrow it.

But actually these changes are going to impact ALL businesses, not just farmers albeit it is probably the farmers who will struggle the most to pay the tax.

These claims include people who just own say one or two fields and rent it out to a farmer for seven years. Under this scenario, the owner is still able to claim APR even though they are not a farmer themselves!!

This is something that I personally would have scrapped and kept it only for working farmers but not bought in the limit. Although even if that aspect of the relief had been scrapped it would have had big impacts for tenant farmers who rent from large estates, so I'm not sure...

The claims also will include smallholdings of people who are still doing the actual farming, but not making a living from farming. If you are an actual working family farm, realistically to make a decent living the family is going to be worth £3 million plus but still not even be very profitable at all.

Many do.

Im still not sure why literal billionaires like the Grovsenors shouldn't be paying inheritance tax just because they rent out farmland as opposed to houses. Clarkson (for example) even boasted that avoiding iht was his reason for buying a farm.

Hopefully this is the motivation behind the change in inheritance tax. I think the town mice have just not realised they are also impacting our cash poor, asset rich food producers.

I'm from farming background (family were farmers for generations and I grew up spending summers labouring for way less than my friends were earning in shops) so I'm not sure I can be considered a town mouse!

My family are/were mostly tenant farmers though, so I'm a bit biased. The owned bit if the business is worth an around £2million and the next generation are partners so my grandfather's share won't be subject to iht even with the changes. The landlord they rent the other fields from (one of the major landowners in the country but not quite as big as the grovesnors) will pay it though.

Whatever the motivation for owning the land and farming it, the IHT relief does ensure that the land is farmed.

If the largest asset in a death estate is the farm, and IHT is due, selling the land may be the only option.

But farmland is worth more if planning permission can be gained to build houses.

If there isn't a coherent national strategy to prevent it, small farms will be sold to developers and lost to being farmed forever, with a knock on effect to food security, environmental impacts etc.

I actually have no idea. It was the figure given by Reeves in her speech.

I only know a few farmers. But they are very wealthy and all of them sell off buildings and land to developers without seconds hesitation when the moneys right. They've done very well out of the farming subsidies and lack of taxation. I'm very glad the loophole has been closed off a bit, but I'm sure they'll find a way to avoid this tax. Luckily as there's now VAT on private school at least the treasury gets something out of them!