Succession planning

Inheritance tax reliefs come under scrutiny

Inheritance tax reliefs come under scrutiny

Farmers are being warned to be exceptionally well prepared, with news that inheritance tax reliefs will come under further scrutiny by HMRC.

Criteria surrounding tax breaks including Agricultural Property Relief (APR) and Business Property Relief (BPR) is likely to become much stricter, following an investigation by the National Audit Office.

This means that in order to qualify, farming families must be extra vigilant on how they structure and operate their businesses, before, during and after the retirement and death of the principal farmer.

One of the key criteria for qualification of these tax reliefs is that the main farmer must be shown to be still farming or at least managing the farm when they died.  "Retired" farmers will continue to attract IHT on their final estates.  In addition, the main farmer must also be in residence in the main farmhouse at the time of death, for the estate to qualify for relief.

Although a popular choice among many farmers today, giving land over to a renewables project could result in that land being no longer viable for any reliefs.

Another popular tactic among farming families has been to convert redundant farm buildings into other businesses such as holiday accommodation, cafe or leisure activities.  Converting these buildings into spaces suitable for a non-agricultural business may also have an adverse effect on any relief which may otherwise have been granted.

It's worth bearing in mind that government schemes, consumer trends and demands may ultimately guide a farming business through the decision of whether to diversify.  However, professional farm succession planning advice should be sought before any decision is made, to ascertain any effects on the final amount of IHT which must be paid.

Daughter of Scottish laird launches succession battle

 

Many papers have reported that the daughter of a Scottish laird is launching a succession battle, in order to gain the rightful title as she sees it, of Lady Colquhoun.

Instead of passing to his daughter, that title instead went to the laird’s second wife. However, this is a very complicated case, made all the more difficult by recent revelations that the daughter, Charlotte Colquhoun, has been acting as a high class escort.

Charlotte was in fact the illegitimate child of a liaison between Sir Malcolm Colquhoun and Susan Armstrong. The couple split before she was born, with each partner going on to form other relationships throughout the years.

Charlotte and her father disagree about the amount of financial contribution that was made towards her upbringing during her formative years, but they both agree that her life took a downward spiral during her teens. She battled to turn her life around and succeeded for a while, but was tempted into becoming a call girl in 2007.

She recently learned that her half brother Patrick is set to inherit the family estate and has set her sights on winning it from him, due to the lack of clarity regarding illegitimate children and inheritance within Scottish clans.

Succession planning for business owners

It’s essential that if you own a business, you then plan not only how to run or grow that business, but also look to at what will happen to that business after you’ve gone.
 
Whether you’re hoping to pass the company onto your children as an inheritance of sorts, or are thinking of putting together an exit strategy, it’s vital that you start planning now, if nothing has yet been put in place.
 
One of the key discussions which must take place when carrying out succession planning for a business is how the new successor is likely to be taxed by taking on this role.
 
In some instances, you as the current owner may choose to gift the business at the time of your death or at the point of retirement, to your children. Alternatively, you may instead choose to incorporate the proceeds of the outright sale of your business into your personal savings to fund your retirement.
 
In either instance, you should ensure that your finances are in a healthy state and that all transactions and accounts are clearly documented.
Should you transfer the business either through a sale or as a gift, this will be normally be classed as a capital gain and you will be taxed on the proceeds at 28%, although if you quality for enterpreneur’s relief, this amount will be reduced to 10%. Remember however, that if you transfer shares to your spouse, this amount will not be classed as liable for capital gains tax.
 
It may be that if you gift your company to one of your children, they can then delay or “hold over” the capital gains tax due, until the point at which they themselves sell the business. With regards to inheritance tax, this gift would potentially be exempt from all IHT, should you survive for at least another seven years after making the gift.
 
There are many pieces of tax legislation and reliefs available to help with effective succession planning. Ask a succession planning expert for advice.

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