Probate: What farming families need to know
© Syda Productions/Adobe Stock Most farming families will encounter the probate process following the death of someone involved in the business.
The process is important for anyone passing on the assets of a farming business as it also involves applying for valuable reliefs from inheritance tax (IHT), such as agricultural property relief (APR), points out Sioned Williams, a private client solicitor with Lanyon Bowdler.
Executors may also need a grant of probate before they are legally allowed to distribute or transfer any assets to the beneficiaries in accordance with the deceased’s wishes.
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What is probate?
Probate is the legal and financial process of proving a will is valid and then dealing with the property and possessions of a deceased individual.
The grant of probate is the document produced by the Probate Registry at the end of that process and is effectively confirmation that the executors have the authority to deal with the estate and pass on the assets to the beneficiaries.
Most assets and bank accounts will be frozen at the point of death until the executors have a grant of probate.
Who applies for probate?
Assuming the deceased has left a will, then it will be the responsibility of the executors appointed in the will to apply for probate.
Where a farming business is involved, most people will ask their solicitor and/or accountant to assist them in dealing with the process.
If there is no will in place, then the same process has to be followed, but rather than applying for a grant of probate, the intestacy rules set out who will inherit the estate and therefore who will be entitled to apply for grant of letters of administration, rather than probate.
This person will become the administrator of the estate and is usually the closest living relative entitled to the estate through the rules of intestacy.
Cost of probate?
The current fee for a probate application is £273.
The more significant costs are likely to be incurred for the services of a surveyor, solicitor and an accountant.
The total cost will vary depending on how much professional input is required and the size of the estate.
See .gov.uk for more applying for probate.
How long does the probate process take?
This will depend entirely on the size and complexity of the estate, says Ms Williams.
“With farming clients, anywhere from six to 18 months is fairly typical, but some will take even longer.”
It is advised to act promptly when dealing with an estate, as any IHT due must be paid by the end of the sixth month after the person’s death.
Anyone claiming APR or business property relief (BPR) will have to fill out what is known as the full inheritance tax account (IHT400), which reports the total value of the estate to HMRC and whether there is any IHT due.
If there is not enough information to submit the IHT400 by the six-month deadline – so the exact amount of IHT payable due is not known – then a payment on account can be made to HMRC.
However, the IHT400 form must be submitted a maximum of 12 months after the date of death.
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Applicants must wait 20 working days after sending the IHT400 form to HMRC before submitting the application for the grant to the Probate Registry.
It can take anywhere between two and 16 weeks for the Probate Registry to turn around an application.
This will depend on the size and complexity of the estate, whether any IHT is due and whether there was a will.
Key steps in the probate process
Registering the death
The first step for family members will be to make sure the death has been registered and to obtain a copy of the official death certificate.
The registry office will usually provide a useful information pack that gives the details of the “Tell Us Once” notification service.
This service allows a death to be reported to most government organisations in one go.
Organisations which will be informed include the DVLA, HRMC, the Department of Work and Pensions, Passport Office and the local council.
Gather information on the value of estate
The executors will need to know the composition and value of the estate and any liabilities to complete the IHT400 form accurately.
The solicitor and accountant are likely to want to see as much information as possible about the deceased’s affairs including bank statements, savings, investments, details of any life assurance policies and mortgages.
Details of any gifts made by the deceased in the seven years prior to the date of death will also be required.
They will also need to know the full details of their land and property interests and anything that could affect eligibility for APR, such as the occupation status of land and any houses, or whether there are grazing licences in place.
HMRC can sometimes come back with questions about the IHT400 form, so the more information the solicitor has at their disposal, the quicker these can be answered.
Have any farms/land valued
A full formal valuation is advisable for probate purposes, and while it will be more expensive than a free, open market valuation, it is likely to save time and money in the long run.
The solicitor will instruct a qualified surveyor to carry out the valuation, which forms the basis of the information submitted on the IHT400 form. The value of the assets will be as at the date of death.
This is not a quick process as the surveyor will need to be booked and then will need time to write their formal report.
However, it will help to establish the clearest possible position in relation to eligibility for APR and whether there may be any tax liabilities.
A well-prepared, robust valuation is also likely to be viewed positively if a decision is made by HMRC to call in the district valuer to look at a case.
Such a decision is likely to be an indication that HMRC has a concern about the valuation of assets.
Once the formal valuation has been completed and all information about any liabilities catalogued, then it should be possible to complete the IHT form and subsequently apply for the grant of probate.
How to avoid common pitfalls or delays
Check the will
At the start of the whole process, executors should check they are working off the correct will. It is always worth making enquiries with the deceased’s solicitor to check they have the latest version.
Failure to report assets or undervaluing assets
In terms of errors made during the probate process, the biggest potential problems arise from a failure to collect the details of all assets, or the submission of incorrect valuations.
This is why a comprehensive formal valuation is so important. “If assets come to light at a later date, then you would need to submit a corrective account to HMRC,” warns Ms Williams.
Tracing beneficiaries
There can be hold-ups where there is no will and the solicitor has to instruct a genealogist to construct a family tree, to make sure they have exhausted all avenues in terms of working out who are the beneficiaries.
No partnership agreement
Where the business is a partnership and there is no written partnership agreement in place, then on the death of one of the partners, the partnership is regarded in law as having been dissolved.
This is why a written partnership agreement is so important, as it will usually state that on the death of a partner, the business can trade as usual.
This should avoid the problem of the partnership bank accounts being frozen upon notification of one partner’s death.
Deed of variation
It is possible, within two years of a death, to change the terms of a will, as long as any beneficiaries left worse off by the changes agree to them.
A will can be changed in this way to:
- Reduce the amount of inheritance tax (IHT) or capital gains tax (CGT) payable
- Provide for someone who was left out of the will
- Move the deceased’s assets into a trust
- Clear up uncertainty over the will
It is not uncommon for a beneficiary to want to execute a deed of variation so they can redirect their inheritance to someone else in the family.
As long as the deed of variation is signed within two years of the date of death, the asset should be treated for IHT and CGT purposes as though it was left by the deceased to the new beneficiary.