Business Clinic: Advice on plan to sell farm at discount on death

Whether it’s a legal, tax, insurance, management or land issue, Farmers Weekly’s Business Clinic experts can help.

Penelope Munro, partner at Thrings, offers advice on selling a farm at discount on death

See also: Business Clinic: should I enter a long-term land use agreement

Q: I live in Northern Ireland and own a 250-acre farm with buildings and a house. None of my children have any interest in farming.

I wish to know that all my land will be well farmed and so I have hand-picked a successor. Can I will my farm to be sold to him at a 30% discount on today’s certified market value of £2.75m?

This valuation is to be linked to the CPI until my death. He will have one calendar year to pay my estate, with the monies then to be distributed to my children.

Should this be achieved, will there be any inheritance tax (IHT) to be paid by my estate or beneficiaries? 

A: Succession planning is important for any family-run farm and especially relevant here, where there is no clear option to keep the business in your family after your death.

In England and Wales, it is possible to include an option for your chosen person to buy the farm at a discounted price after your death, but it is just that – an option.

That person can decide whether or not to accept, and even if they seem willing now, feelings and circumstances can change over time.

I advise you to think this through very carefully, including what may happen if things don’t go to plan.

What would happen if your chosen successor dies before you, has failing health, is unable to come up with the purchase price in the timescale set out, or simply doesn’t want to complete the deal?

High-risk strategy

In any of these circumstances, the only option for your executors may be to sell the farm on the open market.

There is also the risk that your chosen person buys the farm at the discount and then immediately sells it at market value, which they would be free to do.

Regarding inheritance tax (IHT), an option in your will to sell your farm to someone at a discount will not affect the IHT payable by your estate on your death.

The whole value of the farm at your death (specifically valued for IHT purposes) will still need to be declared to HMRC and any IHT paid.

Agricultural property relief, business property relief and your nil-rate band (subject to any lifetime gifts you may have made within the seven years before death) may be available to relieve the IHT liability.

However, a 30% discount is particularly generous and will have a significant impact on what your children inherit.

The sale price for such an option is normally worded so as to relate to the value of the land for IHT purposes at your death, so it remains appropriate whenever death may be.

Lifetime options

Given the risks involved, you may wish to consider other options that can be seen through during your lifetime.

For example, I had a client whose children didn’t want to farm, so he sold the farm on the open market in his lifetime.

He was able to choose the buyer, made money to rehouse himself, generate a healthy income and give generously to his children. The act of gifting can be tax efficient in itself.

Please note that I am qualified to practice in England and Wales.

The law in Northern Ireland shares much in common with principle and practice here, but there are some notable differences as Northern Ireland has its own court system and legal and political history.

For any succession planning decisions, please take advice from a specialist familiar with the law where you live.

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