It is a well-known ‘fact’ that farmers never retire; there is always far too much to do to have that luxury.
Many farmers we deal with are keen to pass the farm and business on to whichever member of the family is most willing, whilst keeping involvement themselves for as long as possible. Given the age of the farming community, it is clearly a healthy lifestyle!
However, the government is aiming to change that by encouraging farmers to retire, by making lump sum payments in lieu of Basic Payment Scheme payments. Much has and much will, no doubt, be written about the detail of this initiative but farming families also need to consider the wider implications of the scheme.
Farming attracts reliefs from inheritance tax, principally agricultural property relief where land has to be farmed in hand for 2 years or let for 7 years. Under this relief, farmhouses can obtain relief if occupied by the person in charge of the farming operations. In addition, where the farm is a trading business, business property relief can be available on the business assets and even the land.
The basic premise of the farmer retirement initiative, known as the lump sum exit scheme, is that the farmer must retire and cease to farm the land in hand (except for a small percentage) and can retain the farmhouse. A farmer moving from a farm business to essentially being a landlord could potentially lose business property relief over assets. Equally, a farmhouse where the land is all let may lose its agricultural property relief.
These reliefs can be valuable and the savings in inheritance tax to the next generation may very well outweigh the cash lump sum paid by the lump sum exit scheme.
It is therefore important that anyone considering the scheme starts thinking about their options as soon as possible and takes good quality advice. They need to think about their plans for the farm as a whole to make sure that any decision taken to accept the payment is one which is beneficial for the family in the future.
As always, involving close family members in discussions, as plans are drawn up, can be beneficial. It is important to ensure that future options and opportunities are not closed off unnecessarily by hasty action in the short term.
Every farming family and every farming business has different starting points and possibilities so it is important that professional advice is tailored to reflect that and provides a solid foundation to any decisions taken.