The Barleymows – Succession, NIC and wages

David, Mary and Henry are sitting at the kitchen table watching George pace …

George: Farming is hard enough and now a potential £1m Inheritance Tax (IHT) liability … might as well sell up!

David: Don’t say that Grandad! This farm has been in our family for six generations. I want to continue working here, and so do my children.

Mary: Sit down George, I’ll pour you a cuppa. These announcements lately have been devastating for everyone in our industry, but we must try to stay positive.

Henry: Following that meeting with Ensors after the budget, I asked for an update on ways to reduce the IHT liability.

George: Why don’t I just give everything away now and hope I live for seven years?

David: You’ll need some money to live on!

Henry: I asked Ensors the same question Dad, but they flagged some important issues. Firstly, you can’t benefit from an asset after you’ve gifted it away. If you do, the gift is deemed to not have happened. You could gift the farmhouse, but you’d need to pay a market rent to continue living here and as David said, you’d need money! There could be solutions to avoid this, but they may lead to other tax implications.

George: The tax man always finds a way …

Henry: Secondly, it’s important for you to keep £1m of farming assets Dad, otherwise your tax-free allowance will be wasted upon your death.

Mary: Does that apply to all of us?

Henry: Yes. Each family member should keep £1m of assets which would qualify for Agricultural Property Relief (APR) or Business Property Relief (BPR) upon their death. This will also preserve the capital uplift upon death for these assets.

George: How’s that a benefit?

Henry: Well … if land inherited is subsequently sold, then the capital gains base cost will be the probate value (market value at the time of death), instead of a very low historic value if the land had been gifted before death. This is a huge benefit where historically the land values have been significantly lower than recent times.

Mary: I don’t own any assets though. There was talk of gifting assets into trust for Mark and Emma, what did Ensors advise?

Henry: A trust will get 100% relief on assets qualifying for APR or BPR up to £1m in value. After that, those assets only get 50% relief, although depending on the trust, there’s the opportunity for it to have £1.65m of value before an IHT charge arises, something to do with a nil rate band, I don’t fully understand.

David: Surely then Dad, we could just gift assets into lots of different trusts, so each has the 100% relief of £1m or £1.65m, or whatever the figure is?

Henry: No. Ensors advised that if the trust was set up before the Autumn Budget, then each trust will receive its own £1m allowance, however, if multiple trusts are set up after October 2024 by the same settlor, they’ll share the new £1m allowance.

David: Could each of us settle £1m of assets into trust?

Henry: Maybe, but there are potential costly legal and professional fees surrounding the creation and compliance of trusts due to their complexity.

George: I’m not worried about passing most of my land down or a reduced farm income, there’s a reasonable amount in my pension; I could supplement the farm income with some of that.

Henry: That’s possible Dad, but it highlights another item in the October 24 Budget. From April 2027, pensions will form part of an individual’s taxable estate on death, thus subject to IHT.

George: That ruins my Will! Most of my pension was being earmarked for your brother John and you, Henry, were going to get my share of the farmland as neither were previously subject to IHT, keeping it all fair. What can I do now?

Henry: We need to re-visit our Wills to try and maximise our IHT relief. However, there’s still the nil rate band which may shelter some of the pension.

George: How much is that?

Henry: £325k, but as Mum passed her entire estate to you when she died, you get her personal allowance as well, so you should get £650k. But…

George: There’s always a but …

Henry: … the nil rate band is reduced for gifts made in the seven years prior to death, so if you gift land away now, including into trust, and die within seven years, that could use up your nil rate band.

George: Whatever I do, it needs to be quick to start the clock ticking!

Henry: Agreed. Let’s look at what can be passed down and let Ensors know. David and I just need to look over employee costs due to the changes.

George: Eh?

David: The changes that kicked in from 6^th April Grandad, the increase in National Minimum and Living Wage figures and Employer National Insurance (NI).

Henry: We now pay more salary for unskilled workers, people over 21 are £12.21 an hour and £10 an hour for those aged 18 to 20. The government are taking an additional 1.2% as Employer NI. To cap it all, the point employers start paying has dropped to £5,000 from £9,100.

Mary: Can we do anything?

David: Not for the main workforce, as they’re mostly over minimums anyway, but we need to consider how much additional help we bring in around harvest time. We’d be better off having one experienced harvest worker over 21 rather than two younger ones with less experience.

Henry: We need to consider the cashflow; there’s always heavy costs around harvest time and with the sudden withdrawal of new applications for the Sustainable Farming Incentive, it might be a bit tight. We need ideas to plug the cash hole.

Mary: What like?

David: Dad and I are putting together a cashflow forecast for the next year and will ask Ensors what they think.

George: Thank goodness for Ensors. Now … where’s that cuppa I was promised?