For many farming families, the land and agricultural business are more than just assets; they represent generations of hard work and a deep connection to the land. Ensuring that a farm remains in the family is often a top priority when planning for the future. Establishing an agricultural or farming trust can be a powerful way to preserve the farm, provide financial security, and facilitate a smooth transition to the next generation.
At Blackstone Solicitors, we understand the unique considerations involved in agricultural estate planning. In this article, we will guide you through the process of setting up an agricultural or farming trust, explaining what it is, the benefits it offers, and the key steps you need to take to ensure compliance across England and Wales.
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What Is an Agricultural or Farming Trust?
An agricultural or farming trust is a legal arrangement that allows you to transfer the ownership and management of your farm to trustees, who hold it on behalf of your chosen beneficiaries (such as your children or grandchildren). The aim is to protect the land and business, ensuring it remains within the family for future generations.
The trust can hold various assets, including farmland, buildings, equipment, and livestock, and can be structured in a way that meets the specific needs and goals of the family. By placing these assets in a trust, you retain control over how and when the farm is passed on, while also potentially benefiting from certain tax advantages.
Why Use a Trust for Agricultural and Farming Assets?
There are several key reasons why setting up a trust can be beneficial for farming families:
- Keeping the Farm in the Family: A trust allows you to specify who will inherit the farm, reducing the risk of it being sold or divided after your death. It helps ensure that the farm remains a family asset and is passed down to future generations.
- Tax Efficiency: Agricultural Property Relief (APR) and Business Property Relief (BPR) can provide significant inheritance tax (IHT) savings when assets are placed in a trust. If the farm meets certain criteria, these reliefs can reduce or even eliminate the IHT payable on the estate, making it easier for your beneficiaries to inherit the farm without having to sell it to cover tax bills.
- Asset Protection: A trust can protect the farm from creditors, divorce settlements, or financial difficulties faced by beneficiaries. It ensures that the farm remains intact and available for the benefit of the family.
- Continuity of Management: By setting up a trust, you can outline who will manage the farm and how it should be run, providing a clear succession plan that can help avoid disputes and ensure the smooth operation of the business.
Types of Agricultural Trusts
There are different types of trusts that may be suitable for agricultural and farming assets, depending on your objectives:
- Discretionary Trust: This type of trust offers flexibility, allowing trustees to decide how income and capital are distributed to beneficiaries. It is a common choice for families who want to provide for future generations without giving outright ownership.
- Life Interest Trust (Interest in Possession Trust): In this arrangement, a beneficiary has the right to receive income from the trust during their lifetime, while the capital remains in the trust for other beneficiaries. This can be useful for providing financial support to a spouse while ensuring the farm eventually passes to the children.
- Bare Trust: Under a bare trust, the beneficiary has an absolute right to the trust assets, meaning the assets must be passed to them when they reach a certain age. This may be suitable for smaller farms or when the family has a clear succession plan.
Choosing the right type of trust will depend on various factors, including the size and nature of the farm, family circumstances, and tax considerations. At Blackstone Solicitors, we can help you decide which trust structure is best suited to your situation.
Steps to Setting Up an Agricultural or Farming Trust
To ensure compliance and achieve your goals, there are several steps to take when setting up a trust for your farm.
- Consult with a Legal Professional
Setting up a farming trust involves complex legal and tax considerations, so it’s essential to seek professional advice. At Blackstone Solicitors, we can guide you through the process, explaining your options and helping you make informed decisions that align with your goals for the farm.
- Determine Your Objectives
Before establishing a trust, consider what you want to achieve. Do you want to ensure the farm remains in the family for generations to come? Are you aiming to reduce inheritance tax liability? Do you wish to protect the farm from potential financial risks? Your objectives will influence the type of trust you create and the provisions you include.
- Choose the Right Type of Trust
Selecting the appropriate trust structure is crucial. A discretionary trust may provide greater flexibility in terms of managing assets, while a life interest trust may be more suitable if you wish to provide income for a specific person, such as a surviving spouse. The decision will depend on your specific goals and circumstances.
- Appoint Trustees
Trustees are responsible for managing the trust’s assets and making decisions in the best interests of the beneficiaries. It is advisable to appoint at least two trustees, who could be family members, friends, or professionals. Consider choosing individuals who understand farming and who you trust to make sound decisions regarding the farm’s future. You may also wish to appoint a professional trustee to provide guidance on legal and tax matters.
- Transfer the Farm to the Trust
Once the trust is established, the ownership of the farm and any associated assets (such as equipment or livestock) must be transferred to the trust. This process involves legally changing the ownership of the property from your name to the trustees. It is essential to ensure that this transfer is done correctly to avoid legal or tax complications.
- Understand the Tax Implications
Agricultural Property Relief (APR) and Business Property Relief (BPR) can provide valuable tax benefits when a farm is held in a trust. APR may reduce the value of agricultural land and buildings for inheritance tax purposes, provided the farm has been actively used for agricultural purposes for at least two years before the transfer. BPR may apply to the business aspect of the farm if it qualifies as a trading business.
However, compliance with tax regulations is critical. Trustees must ensure that the farm continues to qualify for APR and BPR by maintaining its agricultural use and meeting other statutory requirements. Regular reviews of the farm’s activities and tax status are recommended.
Compliance Considerations for Agricultural and Farming Trusts
To ensure compliance when setting up and managing an agricultural trust, keep the following considerations in mind:
- Proper Registration: Trusts must be registered with HM Revenue & Customs (HMRC) through the Trust Registration Service. This helps to ensure transparency and compliance with anti-money laundering regulations.
- Regular Review of Trust Provisions: Circumstances may change over time, and the trust’s provisions should be reviewed periodically to ensure they remain relevant and compliant with current laws. This may involve updating the trust deed or reconsidering the appointment of trustees.
- Adhering to Tax Reporting Obligations: Trustees are responsible for meeting any tax obligations associated with the trust, including filing annual tax returns and paying any due taxes on behalf of the trust. This may involve working with a tax advisor to navigate the complexities of inheritance tax, capital gains tax, and income tax.
- Keeping Detailed Records: Trustees should maintain accurate records of all transactions, decisions, and distributions made from the trust. This ensures transparency and helps in demonstrating compliance with legal and tax obligations.
Potential Pitfalls and How to Avoid Them
Creating a trust for agricultural assets requires careful planning to avoid common pitfalls:
- Ineligibility for Tax Reliefs: Not all assets qualify for APR or BPR. Ensure that the farm and associated business meet the necessary criteria by seeking professional advice on tax relief eligibility.
- Poor Trustee Selection: Choose trustees who understand the responsibilities involved and have experience in managing agricultural assets. Poor trustee decisions could lead to mismanagement or even loss of tax reliefs.
- Lack of a Clear Succession Plan: Ensure that your trust deed specifies who will manage and benefit from the farm, particularly if you wish to pass it on to multiple family members.
Conclusion
Setting up an agricultural or farming trust is an effective way to secure your family’s farming legacy, protect valuable assets, and achieve tax efficiency. By carefully planning and taking the necessary compliance steps, you can ensure that your farm remains in the family for generations to come. At Blackstone Solicitors, we are here to guide you through every stage of the process, from selecting the right type of trust to ensuring ongoing compliance.
How we can help
We have a proven track-record of helping clients create Trusts. We are a multidisciplinary firm and have all the expertise inhouse to satisfy the most exacting requirements of our clients. We will guide you through all the necessary legal due diligence in a comprehensive and timely manner. We firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
How to Contact Our Wills and Probate Solicitors
It is important for you to be well informed about the issues and possible implications of creating a Trust. However, expert legal support is crucial in terms of ensuring your wishes are met as you would want them to be.
To speak to our Wills and Probate solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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