The role of the farm executor has always been a difficult one for a multitude of reasons. Firstly, farmers like to “die with their boots on” so there is normally a living business to deal with. For a sole trader this could mean the executor has to “stand in the shoes” of the deceased and run the farm until the terms of the Will are actioned. For a share in a partnership there has to be careful inspection of the Partnership Agreement, understanding the implications thereof and the interaction with the Will. For a share in a limited company the Shareholders Agreement has to be understood.
Next, we have to consider the valuation. It is the executor’s responsibility to obtain valuations under section 160 (Market Value) and Agricultural Value for Agricultural Property Relief (APR) as applicable. Finally, farm Wills have historically been the subject of family disputes and misunderstanding, eg Williams (Mundil-Williams v Williams and others [2021] EWHC 586 (Ch)) and Abraham (Ingram [2023] EWHC 1982 (Ch)) and the beneficiaries might well not have the same goals. The “litigation habit” in the farming industry has caused problems time and again in cases such as James v James [2018] EWHC 43 (Ch) and many others. For all these reasons, and more, the farm executor has always had their work cut out and the Budget announcements have only added to their workload.
With the drop in APR and Business Property Relief (BPR) from 100% to 50% there is more likely to be an IHT liability which could impact the terms of the Will as shown by the case of Hall (N Hall and another (as trustees of Carolina Raboni Deceased) v HMRC (TC 8691)). The funding of IHT liabilities will be critical.
Farm valuations will be more important in terms of bringing assets into the IHT range and in turn farm valuations will be more complicated with the impact of the Budget changes. Whilst it is predicted more farms will come onto the market., Rollover Relief for Capital Gains Tax (CGT) still exists so there could be willing buyers still wanting to shelter gains. The IHT relief of £1million at 100% and 50% thereafter could still be attractive to a buyer and help keep land values buoyant.
Given the Budget did not provide any further clarification on the so-called bright line between trading and investments, the s.105(3) problems will still remain for BPR and the recent cases of the Butler Barn (Eva Mary Butler & Others v HMRC [2023] UKFTT 00872 (TC)) and Kingsworthy Meadow Fisheries (Demetriou & Anor v HMRC [2024] UKFTT 830 (TC)) must be fully considered in the context of 0% IHT relief.
For those farmers with “pension pots” there will be the administrative burden of bringing these into the IHT calculation. It could well be that some assets will have to be sold to fund the liabilities, such as cottages and outlying paddocks and fields. This in turn could result in CGT compliance and calculation of liabilities. With residences the on-line CGT Return will also have to be considered. The Budget did allow for the paying of liabilities by instalments.
One cynical answer could be that the executor will have to appoint excellent advisers, such as land agents to value and IHT experts to explain the potential pitfalls, alternatives and the possible options available. However, the ultimate responsibility of decision making will belong to the executor.
With a potential IHT liability to fund along with potentially satisfying non-farming children/beneficiaries with their interest in the estate, harmony among beneficiaries and wider family members is going to be harder to achieve than ever.
Action must therefore be taken now. The message from the Budget has been to plan in advance and to consider lifetime transfers as a greater part of taxation (see Q&A Will business property relief come under attack in the October Budget?, Taxation 12 September 2024). Such work should and must consider all decisions in the context of executor responsibilities.
All farm Wills will need reviewing in the context of the choice of Executor and the provision for IHT liabilities and increased lifetime planning. This will have to be as part of full succession planning.
When updating Wills it will become even more important for those drafting the Will to see the farm accounts to fully understand the trading operation. It will also be very important for the Will drafter to review the farm Partnership Agreement to see what will happen on the death of a partner or if it stays silent on the matter, therefore resulting in a dissolution of the partnership. If they identify areas that will impact on the administration and distribution of the Estate, they must flag up the concerns. All farming partners and advisers will have to work together.
