Diversification in farming has long been a hot topic for keeping your business sustainable. Spire Solicitors LLP’s Agricultural Department comments on how landowners should be maintaining the balance between diversification to keep your family business profitable weighed against potential tax pitfalls.
The advent of 2018 and the progression of the Brexit negotiations has intensified speculation and interest among farmers and landowners in the UK over entitlements. It seems each week brings further comment from the Government. Michael Gove, the Secretary of State for the Environment, Food and Rural Affairs (DEFRA) spent his first days in 2018 supporting his ‘Green Brexit’ and at the Oxford Farming Conference at the start of the year has again confirmed the UK government will guarantee entitlements at the same level as the EU for a further 3 years once we have ‘divorced the EU’.
He also suggested that his plans are to reward landowners not for the size of their holding but for stewardship of the environment in the UK. This new farming policy creates an uncertainty, and some landowners may have to change their whole business structure in order to achieve the entitlements that they so rely on or to create a new income stream to support their business.
The changes to the government policies coupled with new technology and succession issues will cause some anxieties. Other avenues of business and income need be looked at and this is where diversification of the land use will be on the minds of many.
Diversification is useful in providing other income streams, as well as to add value to your business; especially where there are unused outbuildings or plots of grassland for uses such as:
- Wedding Venues
- Community Events
- Manufacturing products
Any form of diversification of the business should be considered very carefully. For many landowners the most valuable asset is the land and leaving it to the next generation can be problematical. Currently the government have no plans to change the Agricultural Property Relief (APR) for Inheritance Tax but many landowners fear the worst. There is of course the possibility of Business Property Relief (BPR) but this is not as generous. Increased diversification takes farmers/landowners further from APR and more reliant on BPR.
A key point to remember overall is if the land is no longer used for ‘agricultural purposes’ APR may be lost. This leaves the farmer looking long and hard at BPR which brings its own pitfalls. The Agricultural Department at Spire Solicitors will look more closely at this in the next segment.
When deciding to diversify we recommend you seek advice from your business advisors in providing advice to maximise the additional income stream and the structure of the business whilst also obtaining legal advice regarding your tax planning and business structure and to ensure you retain the value of your asset for those you wish to inherit ensuring one tax advantage now does not jeopardise the other reliefs later.