The 2024 Autumn Budget will have come as a seismic shock to family-owned businesses, and the implications for our farmers and the impact of the fundamental changes to agricultural and business property reliefs for Inheritance Tax, will be widely felt.
Before rushing to judgement though, it’s important to take the time to properly digest the announcements, take the appropriate advice, and consider the alternatives. The Government will publish a technical consultation in early January 2025 on the proposed changes to Agricultural Property Relief (BPR) and Business Property Relief (BPR). Even if no changes are made, what is proposed will not become effective until April 2026. Be aware though that there is proposed anti-forestalling measures which will mean that gifts made now, where the donor dies within seven years and after April 2026, will be subject to the new rules.
The importance of early succession planning
Until now, the nature of the legislation has meant that for many, it hasn’t been necessary to be too concerned about succession. A combination of APR and BPR, combined with Lifetime Allowances and Residential Nil Rate Bands, meant that for many family farms there was little or nothing in the way of Inheritance Tax to pay. This budget has changed that, and if unwanted and unnecessary (and for some, significant) liabilities are to be avoided, having these conversations and planning early will be essential. Robust financial planning ensures the smooth transition of wealth and minimises potential conflicts among beneficiaries.
Detailed solutions are beyond the scope of this article, but it is clear that more thought will need to be given and sooner to understand your position and potential exposure.
The following considerations should be explored:
Life insurance –this can be very useful for succession planning and financial security. It provides a lump sum payment to beneficiaries upon the policyholder’s death, which can be used to cover various expenses and financial obligations including debt repayment. It can provide liquidity to the deceased person’s estate and offer a replacement source of income.
Business structure - Sole traders, traditional partnerships, LLPs and Limited companies are all common farm business structures and sometimes a combination of these. You should consider if your business structure post-budget is now suitable. Do you need to change the structure or the ownership of the corporate entity?
Lifetime transfers -Is it possible or appropriate to pass the business down to the next generation earlier? This is likely to be a significant consideration for many.
Avoid knee-jerk reactions -Avoid making any hasty decisions. It is important to avoid knee-jerk reactions and instead take a measured approach.
Stay informed - Keep up-to-date with announcements and understand how they impact your financial situation. Seek the appropriate professional advice.
Review your plan - Regularly review your financial and succession plans to ensure they remain aligned with your goals and the current economic environment.
Think long-term - Focus on long-term financial objectives rather than short-term fluctuations. Avoid making drastic changes based on temporary market conditions or policy changes.
In conclusion, whilst there is no doubt that the budget has significant and far-reaching consequences for many, all is not lost and careful planning at an early stage may be able to alleviate the worst of it for many.
For further information and support, please get in touch. Call 0808 144 5575 or email help@armstrongwatson.co.uk.
