6 Steps to Estate Planning

Estate Planning

Estate planning is the process of deciding what should happen to your assets after your death or if you become incapacitated, and taking the steps necessary to ensure your decisions will be carried out.

There are 6 key steps:

  1. Identify all the assets and liabilities.

    It is surprisingly easy to overlook items like BPS entitlements, farm workers cottages or even outlying fields.

  2. Identify ownership of the assets.

    Exactly who are the owners – individuals, the partnership, a limited company or a trust? Does this agree with the information at the Land Registry?

  3. How much are the assets worth?

    Is it best to get a formal valuation or will estimates be sufficient?

  4. What is the level of Inheritance Tax and Care Home fee risk?

    This should be documented and used as part of the planning process.

  5. What do you want the ownership structure to be after your days?

    This is usually established through a discussion process based on all the information gathered.

  6. What is the best way to organise your Estate to achieve the objectives and minimise tax risk?

    Good Estate planning will minimise tax risk but, more importantly, it will mean that your assets end up in the right ownership, minimising the possibility of future family disagreements.

At Green & Co we have developed an Inheritance Tax and Estate Planning review in order to advise clients and their family fully with regard to these issues. If you would like to speak to one of our team, please feel free to contact us.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

 

What is the Nil Rate Band?

Nil Rate Band

The Nil Rate Band (NRB), also known as the Inheritance Tax (IHT) threshold, is the amount up to which an Estate has no IHT to pay.

The current allowance available on the Estate of an individual is £325,000; anything above this is taxed at 40%.

The NRB applies to property passing on death together with any taxable gifts made within the seven years before death.

Example

In 2017, Dora dies leaving an estate to her son and daughter worth £325,000.

Dora has never owned a residence, as she was a tenant farmer all her life and lived in rented accommodation. IHT is payable as follows:

£
Chargeable estate 325,000
Less: nil rate band (325,000)
Balance 0
Tax at 40% 0

This threshold is per individual and it is also possible to transfer the allowance between married couples and civil partners.

The NRB is fixed at £325,000 until 2021.

From 6 April 2017, a Residence Nil Rate Band (RNRB) has also been available in addition to the NRB. To find out more about the RNRB, check out our blog ‘How Does the Residence Nil Rate Band Affect Farmers?

At Green & Co we have developed an Inheritance Tax and Estate Planning review in order to advise clients and their family fully with regard to these issues. If you would like to speak to one of our team, please feel free to contact us.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

How Does the Residence Nil Rate Band Affect Farmers?

Residence Nil Rate Band

The introduction of the Residence Nil Rate Band (RNRB) may have a substantial impact on Inheritance Tax (IHT) Planning and how farmers pass on their assets, possibly tax-free.

The new allowance was introduced back in April 2017 at an initial threshold of £100,000, which will rise to £175,000 by April 2020. This threshold is per individual and it is also possible to transfer the allowance between married couples and civil partners.

The RNRB is in addition to the existing Nil Rate Band of £325,000 which is the current allowance available on the estate of each individual, the main difference being that the RNRB is tied in to residential property.

The RNRB allows complete relief from IHT up to the threshold on a house lived in by the deceased at any time, provided that the house is given to a direct descendant such as a child, grandchild, etc. or a spouse, and where the net value of the estate at the date of death is £2m or lower.

With timely Inheritance Tax Planning, this new band could offer more flexible relief for those wishing to take a step back from active farming and where other avenues of tax relief, such as Agricultural Property Relief and Business Property Relief, have more restrictions or may not apply.

For more information please contact our tax experts.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Weaker Pound Leads to Higher Subsidy Payments

Basic Payment Scheme

Basic Payment Scheme payments for 2017 will be just under 5% higher than in 2016 due to the currency exchange rate.

Under the rules of the Common Agricultural Policy (CAP), support payments for the UK are set in Euros and then converted to Sterling  by using the average exchange rate across the month of September.

It means that the payments made this year will be at their highest exchange rate since 2009, which will surely be a welcome boost for UK farmers.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Can You Save Tax with Five-Year Farmer’s Averaging?

Tax return - Farmers Averaging

You should by now have filed, or be the process of preparing, your tax returns for 2016/17. Have you remembered however, that as of 6 April 2016, farmers have the option to average their profits over five years? Two-year averaging is still available, and you can choose which is most beneficial for you – two-year, five-year or no averaging.

This is a valuable relief for those who have experienced fluctuating profits and can result in substantial tax savings.

Example

We can consider this using the example of Farmer Jones, who had the following profits in tax years 2012/13 to 2016/17.

Tax year 12/13 13/14 14/15 15/16 16/17
Profits £
Nil (loss) Nil (loss) Nil (loss) 5,000 70,000
2 year averaging 15/16 and 16/17
37,500 37,500
Tax & Class 4 NIC 7,949.60 8,029.60
5 year averaging
15,000 15,000 15,000 15,000 15,000
Tax & Class 4 NIC 2,044.50 1,764.05 1,633.96 1,504.60 1,424.60

The overall tax and class 4 NIC due without averaging is £20,884.60. With two-year averaging it would be £15,979.20 and with five-year averaging, £8,371.71. That is a significant tax saving of £7,607.49 for opting for five-year averaging over two-year, and illustrates the importance of this new relief.

This simple example assumes that Farmer Jones has no other income. You must also ensure that you meet the qualifying criteria before claiming Farmer’s Averaging.

If you’d like any further information please contact Green & Co on 01633 871122.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Taxpayer Victory: Tribunal Grants Inheritance Tax Relief to Livery

Business Property Relief

Business Property Relief (BPR) can exempt assets from Inheritance Tax (IHT) on the basis that they were used in a genuine business, assuming all other qualifying criteria is met. It is not available where the business activity is wholly or predominantly holding investments.

In The Estate of Maureen W Vigne (deceased) v HMRC [2017], HMRC denied the BPR claim entered by the deceased’s representatives on the basis that her livery involved only the letting of land for the use of others, and the extent of the other services offered did not constitute a business.

The first tier tribunal, however, countered that the extra services demonstrated that the business was a genuine livery business and it clearly went beyond simply holding investments. They allowed the BPR claim.

The representatives had also claimed agricultural property relief (APR) on the basis that the asset constituted ‘agricultural property’.  However, the tribunal held HMRC’s view that it did not. Equine activities are not usually characterised as agricultural.

Green & Co undertake inheritance tax reviews which consider an Estate’s exposure to IHT and planning opportunities. If you’d like any further information please contact us on 01633 871122.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Back British Farming Day

Back British Farming

The 13th September marks Back British Farming day, with many MPs wearing a corn and horns badge to show their support for British farming.

The special day is a rallying call to encourage MPs to use their positions to support the industry, especially with upcoming Brexit negotiations. The special badge has been sent to all MPs and Michael Gove, Defra Secretary of State, is calling on his colleagues to join him in showing support.

The British farming industry is worth over £100 billion and currently employs 3.8 million people. The period of Brexit negotiations has been seen as a crucial time to back this ever growing industry.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Concerns over the Future of EU Workers

EU Workers, Brexit

A recent survey by the Food and Drinks Federation has shown that many in the “farm to fork” sector of UK industry are worried that their businesses will become unviable if they lose their EU workers in the wake of Brexit.

More than a third of businesses said that they had already lost many of their EU citizen workers since June 2016 with even more considering leaving the UK now that exit talks are under way.  The agricultural industry in particular considers UK workers lack the “will and skill” needed to efficiently carry out some of the jobs currently done by Europeans.

It is estimated there are currently around 2million EU nationals working in the UK, with around 20% working in the food supply chain.  Whilst the Government has promised to look at introducing a “settled status” for workers, many feel concerned for their future and no mention has been made on how temporary staff will fare.

A representative from the Food and Drinks Federation has described food is a matter of “national security” and has called on the Government to provide greater reassurance to both workers and their employers affected.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Second Window for Farm Business Grant Scheme

Farm Business Grant.jpg

Further to our blog in April regarding the Farm Business Grant Scheme, the Welsh Government will be opening the second window for those to apply for the scheme this month. As last time, the window will be open for two months, with a total of £40m funding available over the course of the scheme running, until 2020.

More detailed guidance has been published by the Welsh Government regarding the scheme, and can be found here.

Those looking to apply are reminded to make sure you have attended a ‘Farming Connect: Farming for the Future’ event to ensure you are eligible to make an application, as well as being registered with Farming Connect and Welsh Government Rural Payments Wales.

For more information about the scheme, please visit the Welsh Government Website.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

A Farmer’s Life – Through Rose-Coloured Glasses?

Farming - Hard Work.jpg

A recent study by The Prince’s Countryside Fund (PCF) has suggested that the public’s view of the life of today’s farmers is a long way from the truth.

Around 25% of those adults who took part in the study said that they found the idea of giving up their day jobs to go and work on a farm an attractive proposition, having what would appear to be an idealised view of living close to nature and making a comfortable living at the same time. When asked to estimate the annual wage of a farmer, the average came out at just over £46,000 pa, with some even guessing at £75,000. A far cry from Defra’s calculated average of around £20,000!

In reality, more than half of farmers today have to supplement their incomes by doing other things alongside the traditional farming role; and with so many dairy farms now closed and fewer and fewer young people coming into the industry, the future of farming in the UK sits under a cloud of uncertainty.

The PCF concludes that more needs to be done to educate the public on the daily challenges of those working in agriculture, and to enable a better understanding of what it means to be a farmer in modern-day Britain. Better links between the industry and the consumer, they suggest, can help to create awareness and promote British farm products.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.