Specialist accountants for agriculture and farming

You should prepare a will to set out who you would like to benefit from your assets (including your farm) on your death. It’s important to think about who you would like to benefit from your assets and what the tax implications might be. Inheritance tax needs to be considered on death, where a liability arises; this can be detrimental to farms with high capital asset values, where there may not be cash available to fund the liability. To help mitigate the inheritance tax due, there are two important inheritance tax reliefs which can apply to farms where certain conditions are met.

Our agriculture accountants will help you review the whole farming enterprise and your personal financial position to identify where inheritance tax reliefs are available. We can advise on the availability of valuable inheritance tax reliefs, including Agricultural Property Relief (APR) and Business Property Relief (BPR), and help structure your affairs to maximise the reliefs available.

As farming businesses become increasingly diversified, careful planning is essential to ensure relief is not lost. We can work closely with you to understand the full picture, providing clear, practical advice that supports both succession planning and the long-term future of your business.

Once your current position has been established, consideration can be given to whether you can improve the inheritance tax reliefs available to you and if you should consider giving assets away in your lifetime.

Few people can talk about their deaths comfortably with their family and loved ones, but it’s essential to have open and honest discussions so that everyone is aware of your wishes. This is particularly important when you have multiple children, some of whom are involved in the farming business and some of whom aren’t.

It all depends on what you’re diversifying into. If you’re diversifying into other farming activities, for example, from arable farming to poultry farming, there will be little change to the tax position. All income from farming is assessed as one trade for tax purposes, and there will be no change in the VAT position, inheritance tax reliefs or capital gains reliefs.

If you’re is diversifying into investment activities, such as property rental, there can be a substantial change in the tax position. For income tax purposes, the rental profits will be a separate trade which can carry its own tax rules. Generally speaking, rent is exempt from VAT, which can lead to a restriction of input VAT reclaimed on overheads. Agricultural and Business Property Relief may not be available at all if the business is not “wholly or mainly trading”, and so if the rental business will be larger than the farming business, you should consider restructuring to protect valuable reliefs against the farming assets.

Diversifying into renewable energy can be attractive from a tax perspective, as capital allowances may be available in respect of qualifying expenditure. The extent of relief will depend on the type of project and the assets involved. If the energy is used in the farming business, the inheritance tax and capital gains position won’t change. If the energy is sold, it may be considered an investment activity, which, as mentioned above, can lead to restrictions in the relief available.

Setting up a trading business will still see changes to the tax position of your business. For income tax purposes, the profits will be a separate trade, which can lead to restrictions if one of the trades is making losses or with farmers’ averaging claims. For inheritance tax purposes, Business Property Relief will be available on the new trading assets without any tainting of Agricultural Property Relief on the farming assets.

Changing risk profiles for diversification means that you should consider diversifying in a separate entity with limited liability to safeguard the existing business against any claims.

There’s a lot to consider with diversification from a tax and accounting perspective, and our friendly team of farming accountancy experts are here to chat through ideas and ensure you avoid the pitfalls.