Farming is not only a business but also a way of life, often spanning generations. Protecting agricultural assets for the future, whether it’s farmland, machinery, livestock, or rural property, can be complex, especially when considering the ever-evolving legal and tax environment in the UK. This is where agricultural and farming trusts come into play. These specialised legal structures can help secure the future of your farming enterprise, ensuring it stays within the family and is passed down to future generations in a tax-efficient manner.
At Blackstone Solicitors, we work with farming families across England and Wales to help them understand the intricacies of trusts and how they can protect agricultural assets. This guide explains what agricultural and farming trusts are, how they work, and the benefits they can offer to farming families.
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What Are Agricultural and Farming Trusts?
An agricultural or farming trust is a legal arrangement designed to manage and protect farming assets, ensuring they are preserved and passed on to future generations in a way that minimises taxes and protects against potential financial risks. In simple terms, a trust involves three parties:
- Settlor: The person (or people) who sets up the trust and transfers assets into it.
- Trustees: The individuals or institutions responsible for managing the assets in the trust.
- Beneficiaries: The individuals who benefit from the trust, such as family members or future generations.
Farming trusts are often set up as part of estate planning to manage assets such as land, property, livestock, and equipment. By placing these assets into a trust, the settlor can ensure they are managed according to their wishes, often with the goal of keeping the farm operational and in the family.
Why Are Trusts Important for Farmers?
Farming families face a unique set of challenges when it comes to estate planning. Farms are often high-value assets with complex ownership structures, including land, buildings, equipment, and livestock. Many farmers want to ensure that their land and business remain intact and within the family, while also minimising inheritance tax (IHT) and other financial liabilities.
Here are some key reasons why farming trusts can be essential for agricultural families:
- Preserving Family Assets: Agricultural trusts can ensure that the family farm stays within the family. They provide clear instructions on how assets are to be managed, divided, or passed down, preventing disputes among heirs.
- Tax Efficiency: Trusts can help mitigate inheritance tax (IHT), capital gains tax (CGT), and other financial burdens that might otherwise be imposed on heirs. When structured properly, agricultural trusts can take advantage of various tax reliefs to reduce the overall tax liability.
- Continuity of the Business: Farming trusts can ensure that the farm continues to operate smoothly, even after the settlor’s death. Trustees are often appointed to manage the assets until the beneficiaries are ready or able to take control of the business.
- Protection Against Financial Risks: Trusts offer a level of protection from creditors or in the event of divorce, bankruptcy, or other financial challenges that could threaten the farm’s assets.
Key Types of Trusts for Agricultural and Farming Assets
There are several types of trusts that can be used to manage farming assets. Each has different benefits and is suited to different circumstances. Below are some of the most common trusts used by farmers in the UK:
- Discretionary Trusts
A Discretionary Trust is one of the most flexible options available to farming families. The settlor places assets into the trust, and the trustees are given the authority to decide how and when to distribute assets to the beneficiaries. This is particularly useful when the settlor wants to maintain flexibility in how the farm and its assets are passed down. For instance, the trustees can delay passing assets to a beneficiary until they are financially mature or capable of running the farm.
Advantages:
- Flexibility in asset distribution.
- Potential tax benefits.
- Trustees can manage assets for future generations.
- Life Interest Trusts (Interest in Possession Trusts)
A Life Interest Trust allows the settlor to appoint a beneficiary who will receive income from the trust assets during their lifetime, while the capital remains protected for future generations. This type of trust is commonly used in farming families where one family member (such as a spouse or child) needs to benefit from the farm income but the ultimate ownership of the farm will pass to another generation.
Advantages:
- Provides income for a current beneficiary.
- Protects the capital value of the farm for future generations.
- Can be structured to take advantage of agricultural property relief (APR) for IHT purposes.
- Bare Trusts
A Bare Trust is a simple structure in which the beneficiary has an absolute right to the assets. The trustees are responsible for holding the assets until the beneficiary is ready to take full ownership, usually when they reach a certain age (such as 18 or 21). This type of trust is often used when the settlor wants to ensure the farm is passed directly to their children or grandchildren.
Advantages:
- Simple structure.
- Beneficiaries have complete control over the assets once they reach the designated age.
- Taxed directly on the beneficiary’s personal income or capital gains tax thresholds.
- Settlor-Interested Trusts
This type of trust allows the settlor to benefit from the income or assets placed into the trust, while still ensuring the farm is passed to future generations. However, it is important to note that these trusts can have less favourable tax treatment, and they may not qualify for certain reliefs, such as APR or CGT exemptions.
Advantages:
- Allows the settlor to retain some control or income from the farm.
- Assets are still protected for future generations.
Tax Reliefs Available for Farming Trusts
One of the key benefits of establishing a trust for agricultural assets is the potential to take advantage of significant tax reliefs. The most relevant tax reliefs for farmers include:
- Agricultural Property Relief (APR): APR offers up to 100% relief from inheritance tax on the agricultural value of qualifying property. This includes land, buildings, and certain farming equipment. To qualify, the property must be used for agricultural purposes, and the settlor must have owned the property for at least two years (or seven years if it is rented out).
- Business Property Relief (BPR): If the farm includes business assets that are not purely agricultural, BPR can offer up to 100% relief from IHT on those assets. This applies to assets such as shares in a farming business or agricultural equipment used in the operation of the farm.
- Capital Gains Tax (CGT) Holdover Relief: When assets are placed into a trust, CGT might ordinarily be payable on any increase in the value of the farm. However, with Holdover Relief, CGT can be deferred until the assets are eventually sold, reducing the immediate tax burden.
Setting Up an Agricultural Trust: Key Considerations
Setting up a trust for farming assets is a detailed process that requires careful planning and expert legal advice. At Blackstone Solicitors, we work with farming families to ensure that their trusts are structured in a way that protects their assets and maximises tax efficiency.
Here are a few key considerations when setting up an agricultural or farming trust:
- Choosing the Right Trustees: Trustees will be responsible for managing the farm and making important decisions about how assets are used. It’s essential to choose trustees who are trustworthy, capable, and familiar with the farming business.
- Tax Planning: Ensuring that the trust is structured to take advantage of available tax reliefs is critical to minimising financial liabilities.
- Family Dynamics: Open communication within the family is essential to ensure that the trust is set up in a way that reflects everyone’s wishes and avoids disputes.
Final Thoughts
Agricultural and farming trusts offer an effective way to protect your farm and ensure its smooth transfer to future generations. By placing your farming assets into a trust, you can safeguard them from financial risks, minimise tax liabilities, and ensure that your family’s legacy remains intact.
How we can help
We have a proven track-record of advising upon all aspects of private client work. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.to incorporate, what kind of ownership
How to Contact Our Private Client Solicitors
It is important for you to be well informed about the issues and possible implications of dealing with trusts. However, expert legal support is crucial in terms of ensuring a positive outcome to your case.
To speak to our Trust 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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