Budget countdown: What farm businesses should review now

With public finances under pressure, the impetus to complete transactions and asset transfers in the next four weeks has ramped up, in case of further unfavourable tax changes.

While there is not enough time to allow some moves to be made before 28 October, there are many families who have sought and been given advice over the past couple of years and have made their decisions but held back from completing matters, says Richard Miller, partner in the agri and estates team at law firm Burnetts.

See also: SDLT charges on asset transfers – what farmers need to know

He recommends resisting the temptation to wait and see what the Budget brings.

“The current rules are known, so families who have already been considering lifetime gifting, estate planning or succession arrangements should review the position and take this chance to put things in order.

“Lifetime gifting remains one of the most tax effective IHT planning tools,” he says.

So, if everything was in place six months ago and it is simply a matter of signatures and witnesses, then why not complete the documents in question, he suggests.

“Predicting Budgets is always a risky business, but those who have already put their affairs in order are generally in a far stronger position than those who wait for legislation to force their hand – opportunities available today may not necessarily be available in the future,” says Richard.

Succession planning is often delayed simply because life gets in the way and the more immediate day-to-day demands of the business or family take priority, he adds.

Capital gains tax

Capital gains tax (CGT) is on many people’s minds, he says, with a push on now to get sale transactions through before 28 October to lock in current rates.

Richard points out that it is the date of exchange of contracts that is the date of disposal for CGT which determines the tax year it falls into. 

Inter-family asset transfers

Asset transfers within families will usually include a claim for holdover relief (also referred to as gift relief), so that CGT on that gifted asset does not become due until the recipient sells or transfers the asset in future.

Richard points out that the government’s moves on IHT have sparked a great deal of gifting and if holdover relief for CGT were to be abolished, as has been speculated, this would simply discourage the handing on of assets to the next generation, rather than increasing the tax take.

 While some tax planning moves require more time than is now available, there are several areas to review:

• Gifts of cash from surplus income to children and grandchildren     
• Transfers of shares within family companies and documented under written shareholder agreements and updated articles of association
• Succession relating to partnership interests including updated written agreements and gifting of historic capital accounts
• Farm business ownership structures
• Property ownership arrangements
• Existing wills
• Trust structures
• Potential inheritance tax liabilities across the wider family.

Peter Griffiths, tax director at accountant Hazlewoods is also busy finalising matters for farming families.

“It’s about managing risk – if you’re looking to make a gift on which CGT would be due, then definitely do this before the Budget – rates will only go one way, even if there is no change this time,” he says.

Where the plan is to gift farmland that may come for development in future, gifting it now at its present value, of say £10,000/acre, is far better tax planning than doing this later when the value may rise to £300,000/acre with the grant of planning permission.

© Wayne Hutchinson/Alamy Stock Photo

Inclusion of the land in a local plan can even bump up its value threefold, says Peter.

“What you want to avoid is the older generation selling land for development, then gifting the cash and not surviving seven years after the gift, meaning a potential sizable IHT liability.”

He points out that when a gift is made, it is the value at the date the gift is made that is of consequence for inheritance tax purposes.

This means that even if a donor does not survive for seven years from making a gift, it comes back into a person’s estate at the value at which it was gifted and not the value at the date of death.

“If land is sold for development after a gift, meaning it is not in a qualifying use for IHT relief at the donor’s death, then any IHT liability will be based on the value at the date of the gift.”

Partnership matters

At law firm Wilsons partner Ben Smith says succession and partnership matters are the focus of much of his pre-Budget work.

“This is something the families in question would be doing anyway but things have been sped up in advance of the Budget, for example to bring in new partners and allocate capital to them or to their land capital account within the partnership, transferring the value of land, or a proportion of it, to the new partners,” he says.

For anyone wanting to do this and who has assessed it as the right move to make, there is still time to organise it before the Budget, he says.

“You probably need about two to three weeks to get it done, as long as there are clear records and paperwork in place to enable the advisers to document the transfers.”

He also reminds people that holdover relief must be claimed formally with HMRC, not assumed to be in place.

Ben sees a review of or proposals for reform of Stamp Duty Land Tax as a possible Budget announcement, with a consultation to follow, rather than a change in the Budget itself.

Beyond the Budget, April 2027 brings pension funds into the IHT net and he reminds those affected by this that they have just six months in which to examine the options, make decisions and act.

Inheritance tax

After the last two years’ switchback ride of IHT relief cuts and revisions, this tax is not thought likely to change.

Where speculation in relation to IHT has occurred it is generally in terms of the possibility of extending from seven to 10 years the period for which someone giving a gift must survive for that gift to sit outside their estate.

Alternatively, the amount eligible to become IHT free could be capped.

Commitments

The Labour manifesto commitment not to increase the main rates of income tax, VAT and employee national insurance contributions during the current parliament has been repeated by the government.

The annual investment allowance will also be retained during this session of parliament.

Corporation tax has been capped at 25% throughout the current term and full expensing for qualifying capital expenditure by those trading as a company is also protected.