DONT FAIL TO SUCCEED AT SUCCESSION
AN alarming number of farmers have not considered succession planning in any way and they should do so as a matter of urgency, says Lisa Whalley, of accountant Jackson Stephen.
"There are grants available to help farmers plan their finances, so now is a good time to consider how to reduce the overall burden of taxation after death. Planning your will is just one action that could benefit relatives if considered properly," says Mrs Whalley, who is based at the firms office in Bolton, Greater Manchester.
To show how forward planning can help, she cites an example where a farmer dies, leaving his entire estate to his wife. Under the spouse exemption rules (assuming the farm does not qualify for agricultural property relief, and not all do) he would pay no tax on his estate. However on her death, the couples children would owe a considerable amount of inheritance tax when they inherit the balance of the estate. This is largely because his inheritance tax exemption, currently £242,000, would have been wasted.
"In this case, the farmer could have avoided this happening by setting up a discretionary trust in his will to provide an income from his estate to his wife during her lifetime, with the main beneficiaries being his children. This would utilise his inheritance tax exemption and save nearly £100,000 on the eventual death of his widow."
There are several other ways to reduce the amount of inheritance tax paid by beneficiaries, Mrs Whalley explains.
And any gift made during lifetime can be considered a PET (potential exempt transfer), although in most cases, the person making the gift has to live for seven years to avoid all inheritance tax on that gift.
"Gifts amounting to £3000/year are also free of inheritance tax and last years allowance can be given away if it was not used this year. It is also possible to make an unlimited amount of gifts of £250. The marriage of sons and daughters can also provide an opportunity to give away up to £5000 tax-free, thereby reducing the amount of tax payable on the estate." *