Succession planning vital for Dorset farmers

Dorset’s farmers must plan ahead or their families could face massive tax and inheritance problems after their death, says a county legal expert.

Jerome Dodge, Head of Private Client at award-winning Dorset law firm Blanchards Bailey LLP, warns that succession planning is vital to safeguard the future of farms.

He said: “Our extensive experience in the agricultural field shows that the estates of deceased farmers do not always fully benefit from Inheritance Tax reliefs available because those farmers have failed to plan ahead during their lifetimes.”

Mr Dodge, recognised by the influential Legal 500 and recommended for his estate planning and inheritance tax planning specialist knowledge excellence, added: “Farmers are busy people, but if they don’t act on this issue they are storing up huge problems for their families.

“There are simple and inexpensive steps which can be taken to rectify the situation and which ought to be considered. Farmers should take appropriate advice, which is almost always best provided by the farmer’s solicitor, accountant and, quite often, land agent working together to provide the most effective solutions.”

A national survey revealed that fewer than 50 per cent of farmers had succession plans in place, with those that do have provision needing to review it on a regular basis to make sure it was not contradictory to changes in tax legislation.

Mr Dodge, based at the Blandford headquarters of Blanchards Bailey, which also has offices in Poundbury, Shaftesbury and Weymouth, explained there was a need to maximise the availability of Agricultural Property Relief (APR) and Business Property Relief (BPR).

He said: “Most farmers’ estates benefit from a combination of APR and BPR from Inheritance Tax. As farmers diversify more and more, the availability of BPR for farmers has become increasingly important. Relief can easily be partially or completely lost if appropriate legal documentation is not in place.

“An important point to note is that land which attracts BPR rather than, or in addition to, APR. In principle, such land attracts 100 per cent relief from Inheritance Tax if it is owned by the farm partnership, but only 50 per cent relief if it is owned by the individual farmer and used by the partnership. An example would be land with development potential beyond its agricultural use.”

Mr Dodge said these were matters which HMRC looks closely into on the death of the farmer and it was very important to have documentation in place showing that the land was owned by the partnership.

He said: “A combination of a suitable partnership agreement which makes clear reference to the land in question, deeds which show that the land is owned by the partnership, and partnership accounts which also refer to the relevant land generally provides conclusive evidence.

“However, it is commonly the case that these documents do not exist and equally common to find that some of these documents conflict with one another. A very significant amount of Inheritance Tax can usually be saved by a review of legal and accountancy documentation, and relatively inexpensive steps can be taken to maximise Inheritance Tax reliefs available.”

Mr Dodge added that the existence of a will was also a vital component part of not only saving on tax, but also to possibly prevent farms from being broken up upon the death of the farmer.

“Unfortunately, we see far too often farms being broken up on the death of a farmer because that person has died with an inadequate will, or even no will at all.

“Careful thought needs to be given to succession planning, often involving consideration as to whether the farm, or portions of it, should be left to particular children, with others being compensated by other assets, or whether the farm should be split between all children.

“Quite often, a trust within a will allows the farm to continue to function after the main farmer’s death, and can also be used as a means of sensibly dividing the farm between family members.”

Mr Dodge said the setting up of a discretionary trust and placing farm assets in it could also save a farmer’s family Inheritance Tax of 40 per cent should they subsequently wish to sell all or part of the farm.

He added: “At Blanchards Bailey we look upon ourselves as a one-stop shop for all farming and agricultural legal requirements and our team of experts is available to meet any need.”

Eighty-strong Blanchards Bailey is a Legal 500 firm – making it one of the top firms in the South West.

The firm received unprecedented recognition in UK's leading law sector directory, the Legal 500. The annual publication, The Legal 500 2018/19, recommends the firm in a record seven specialist categories with 11 individual lawyers mentioned including all five Partners.

Blanchards Bailey also won a hat-trick of titles at the 2019 Dorset Legal Awards: Law Firm of the Year (up to 99 employees), Company Commercial Team of the Year and Private Client Team of the Year. 

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