The Thorny Issue of Agricultural Diversification

Anne Elliott, Latimer Hinks Solicitors

It is no surprise that the farming community is becoming more and more attuned to the attractions of diversification. Challenged by the threats of lower dairy prices and higher feed prices (to say nothing of the weather and its threat on yields) taken with the Eurozone problems many continue to look for new commercial opportunities. We have seen a steady increase over the past decade in the number of landowners seeking advice from us in this important area of diversification.

Many farmers and landowners have sought to maximise on the commerciality of their land and have embraced various opportunities. Many have converted under-used or redundant farm buildings, including barns and storage facilities, to provide residential holiday or commercial/business lets, some with considerable success. Other new projects include children's nurseries, small office developments, farm shops, units for storage and warehousing and riding liveries and schools. Other key projects include wind farm developments, commercial fishing lakes and mineral exploitation and landfill.

Potential pitfalls arise when owners of agricultural land choose to go down the diversification route. Some changes can prejudice the farmer's entitlement to Business or Agricultural Property Relief for Inheritance Tax (IHT) purposes. Altering the status of the use from agricultural to, e.g. equine can affect the farmer's entitlement to these very valuable IHT Reliefs.

The principal condition for securing Agricultural Property Relief is that the land must meet the IHT definition of 'agricultural property' and be used for agricultural purposes. Farmers and land owners who decide to change the use of their land for an alternative commercial use run the risk of losing Agricultural Property Relief and thus becoming subject to Inheritance Tax unless they can still qualify for Business Property Relief. It is crucial to seek legal advice before implementing agricultural diversification.

Another important condition relates to the period of ownership and occupation. In general terms, owner occupiers who are trading can secure maximum reliefs after two years - otherwise a seven year period of ownership is necessary.

The rules relating to Agricultural and Business Property Reliefs are complex and professional advice should always be sought.

Agricultural diversification schemes provide a welcome and crucial income stream to supplement that generated by the traditional farm business, but there are possible tax problems, so care is needed.

In summary, the issue of land diversification can be a thorny one. The crucial point to remember is the need to seek sound legal and accountancy advice before implementing any diversification scheme. Agricultural and Business Property Reliefs can be retained, but careful planning is often crucial.

Anne Elliott is a Partner and agricultural law specialist at Latimer Hinks Solicitors. Anne is a member of the Agricultural Law Association as well as a Recommended Professional for the Tenant Farmers Association. In 2011, she was cited in the prestigious Legal 500 Directory for both her work on inheritance tax and in the areas of agriculture and estates. This was followed by a recommendation in Chambers 2012 for her expertise concerning, among other areas of law, the Agricultural Holding Act. Latimer Hinks has a team of around 50 people serving private and corporate clients.

For further information: www.latimerhinks.co.uk or call 01325 341 500. Please note: This article is intended as guidance only. No responsibility for loss occasioned/costs arising as a result of any act/failure to act on the basis of this article can be accepted by Latimer Hinks. In addition, no responsibility for loss occasioned/costs arising as a result of any act/failure to act on the basis of this article can be accepted by the firm

Can't Take It With You - Was it the right advice for a family farming business?

I feel I must put pen to paper (fingers to keyboard) and have a little rant about the recent Can't Take It With You episode which touched upon a family farming business.


As a farmers daughter I understand the complexity of family relations within a farming business. Latimer Hinks has many agricultural clients where succession planning advice is critical in retaining the farming business within the family - and good family relationships.


BUT.. I have to say that I didn’t really agree with the solicitor’s approach re the farming family scenario will and the two options she gave to the parents. In fact I felt both were pretty dangerous in the context of securing the main objective.


Objectives - to keep the business intact/protect the farm and the business which the parents had spent years building and to try and treat the children fairly.

Three sons and one daughter-with the three sons working in the business-all three with wives/partners- youngest child the daughter and obviously the apple of Mum and Dad’s eye-and loved by her brothers

Their solution number one-in the will, give the whole shooting match to one son-how was that protecting the asset?-what if he was divorced/became bankrupt/died prematurely wanting his wife and children to take his estate? Did I miss something?

Their solution number two-the family partnership which was the one the parents went for-with a larger % to son 1 and smaller percentages to sons 2 and 3 and then 10% to daughter-how are those boys going to feel as and when daughter gets older moves on, maybe marries and has nothing whatsoever to do with the farm-especially if farming incomes drop and she is well provided for by her own husband/partner/own means? They may feel ok about it now but I suspect won’t do as years pass and they are older, have worked longer and are locked into the situation particularly if they have their own families who could well be working hard in the business.

I think the solution proposed could be dynamite when Mum and Dad have both died.

I would have felt pretty upset if I had been one of the sons-particularly the 2 younger ones with a smaller share than their brother-although of course he may be doing more work-probably not. I feel a fairer solution which everyone could have been 100% happy with could have been designed.


My Solution
To my mind the classic perfect solution would have been a trust for the land separating the business ownership from the land ownership-certainly protect daughter and ensure she has a share of proceeds if and when the land is sold-I wholeheartedly agree-but surely whilst the farm is effectively a tool of the farming business and generating profits from the endeavours of the boys particularly as they are paying (by the sounds of things) bank borrowings then surely they should share the rewards of their hard work? Keep the deceased parent’s share of the business in the trust and share the trust’s share of profits/losses between the boys if they are doing the work-or let the boys have the business assets but protect the land


To leave the land in a discretionary trust for the use of the boys would protect the asset-so no one child could prejudice its retention for the good of the family as a whole –enable it to be made available to any family members wanting to farm-potentially provide an income for daughter if and as necessary –for example the land could be let to the farming partnership by the trustees and the rent paid to the daughter if she wants/needs income

Summary
Watching all of the episodes broadcast to date I am not sure about these family round table meetings-people get upset/start and talk about fairness and unfairness-and in any family the issues are so often FAIRNESS v EQUALITY-what is right for any particular family may not be right for another and farming families are very problematic where some children are working in and some working outside the farm/the business-the parents have got to be strong and dictate what is fair and that may not be equality-though of course they may not agree between themselves!!

Also what if Mum and Dad change their minds for whatever, but specifically for excellent reasons e.g. a regular review throws up the need for a change in the will -yet don’t feel able to communicate the change of mind to the family-what if eg reverting to the farm and Friday’s programme any of the boys are divorced-not only the sons but potentially divorcing wives have a greater degree of expectation if there has been a round table discussion such as we saw? Personally (preferring not to have a meeting) if there is going to be a meeting I suggest having it once the will has been signed and with only the immediate family present ie sons/daughters.

Some bright spark is bound to come up with an argument about proprietary estoppel where there has been such a meeting if ultimately someone is disappointed and does not receive what he/she perceives he/she was promised eg because a will is later changed!

Wills of business men and women -particularly farmers -benefit from and should be subject to regular review.

I could go on and on and on……….but won’t….but I will continue to promote discretionary trusts in the context of their flexibility - particularly in protecting the farmland and the business assets for the families of the vast majority of farmers who see themselves as custodians of the land for the benefit of future generations of the family who want to farm-with the flexibility for all the family to benefit and to varying degrees/extents if the farm is -as it will inevitably be one day – sold.

Similar considerations apply to all family businesses with some family members working in the business and others not-trusts are the perfect solution to protect the family the business and the principal source of perhaps 3 or 4 families’ livelihoods

Here endeth the rant!

£1000 Donation to the Farm Crisis Network, but do I really need a photograph??

This morning saw me up bright and early leaving home before 7am to keep a breakfast appointment at the Great Yorkshire Show at 8.30am

Incredibly I had to queue to get in to the Showground-a vast area-and then had to find Stand 614!!

I made it and renewed acquaintances with friends and colleagues from the Tenant Farmers Association (of which I am a recommended professional) and was warmly welcomed by all especially the Farm Crisis Network people.

We do a lot of work with farmers in North Yorkshire and South Durham and many of them have a very tough and solitary existence-the FCN supports them practically, emotionally and financially.

On the 22nd May the TFA organised a sponsored walk to raise funds for FCN. Normally I would have taken part BUT the Latimer Hinks Charity Ball was held on the 21st May - which resulted in a very late night/early morning for me! I was in no fit state to attend a lengthy walk but felt we needed to support this very worthy cause.

The ball raised £11,500 with monies going to Help for Heroes, St Teresa's Hospice and smaller local charities. We chose the Farm Crisis Network to be one of our "smaller charities." We wanted to support them by handing over a donation of £1000 from the fund.

Andrea my Marketing PA insisted that this was not just a case of me handing over a cheque-I had to find a beast, a cow, a pig or a sheep to be photographed with –and, as you can see by the photo I duly obliged.

We are making huge efforts to try and encourage farmers and the farming community to look at succession planning-and the TFA and FCN and the Yorkshire Agricultural Society are working with us to get the message out there-very much a case of a joined up approach.

Finance for Farmers - follow up

If you really wanted to attend the Latimer Hinks/Barclays presentation on Finance for Farmers but were unable to make it - here is a brief outline of what was discussed

FINANCIAL SEMINAR FOR FARMERS

Latimer Hinks Solicitors have recently co-hosted with Barclays Bank a breakfast presentation on the theme “Finance for Farmers 2010.”

Issues explored included lending in the current financial climate, the legal issues surrounding providing security for borrowing and the importance of planning for the future and how to achieve it.

Presentations were given by Anne Elliott and Rosanne Green, Agricultural Specialists at Latimer Hinks Solicitors and Martin Redfearn, National Agricultural Specialist with Barclays Bank.

Rosanne Green outlined the legal formalities relevant to providing Banks with security for lending.

One of the important factors highlighted was that the borrowers and the owner occupiers may need to seek separate legal advice.

Rosanne used the example parents owning a farm, but the borrowing being taken by the farming partnership, perhaps including not only the parents but sons/daughters/daughters-in-law etc. Each would need to be advised in their different capacities.

Anne Elliott explained that at the point in time where borrowing is being taken/considered it is very important to look at the structure of the business and the aspirations/intentions of the various parties.

She stressed it was important for farmers to talk to all their advisers - the bank, the accountant, property or personal lawyer and financial adviser in terms of analysing where a business is going and, importantly, succession planning for older generations.

Anne Elliott said: “The event provided a range of practical advice and information which those attending could take on board and which I hope will prove useful in their farming businesses.

It was good to provide the opportunity for people to hear what is involved in relation to setting up and finalising borrowing arrangements and also to talk informally to professional advisers.”

The event was of course followed by a breakfast of bacon and sausage sarnies!

"Would I Be An Executor?"

Nick Parmee's Times Online humorous article last week made me smile. He answered his own question "Yes, but it can be quite a burden."

An old friend (referred to as "Fred") had invited him to act as his executor and, flattered by the implied compliment to his "personal integrity and organisational powers", he accepted.

The will was up-to-date so no problem he thought - probate simply a couple of agreeable lunches spent reminiscing, signing a few papers provided by "old-fashioned lawyers with dandruffy cardigans"!!!

In his terms "nonchalance turned out to be far from reality"!!

Problem No 1- organising the funeral - it took nearly 2 weeks - no one knew what Fred wanted - cremation/burial, wake/no wake etc etc.

Problem No 2 - Fred's current account (from which household accounts were paid) was frozen and his widow had no account of her own.

Problem No 3 - myriad of finance houses all issuing letters from "Deep Sympathy" computer refusing to communicate without death certificates and he'd only bought one!

Problem No 4 - he needed a lawyer/accountant/estate agent/personal effects valuer and wished they'd all been lined up by Fred in advance rather than it being left to him to choose "with less time to assess the choies than you'd spend in the supermarket wine section on Friday evening."

Problem No 5 - tracking down ALL insurance companies, building societies, credit card companies, shop accounts etc etc...

Nick then refered to Fred using the website Lasting Post The service aimed at helping you plan for your own demise - Have a look at it!

Not too happy about his view of probate lawyers as being old fashioned "with dandruffy cardigans" - in my experience in 2010 they are mainly young, female, pretty, "sassy" (me excluded)!! Check out our website - and our people

Finance for Farmers

WE are hosting a breakfast presentation on the morning of Thursday 28th January with Barclays Bank Plc entitled "Finance for Farmers 2010". The presentation will cover the Bank's perspective on lending to the agricultural sector in the current financial climate and the legal issues encountered when borrowing money.

The presentation is from 7.45 am and will commence at 8.00 am. It is being held at Crabtree Hall, Little Holtby, Richmond (see http://www.crabtreehall.com/). Martin Redfearn, Barclays Bank National Agricultural Specialist will start the presentation followed by Rosanne Green and Anne Elliott, Agriculture specialists at Latimer Hinks. There will also be an opportunity to talk to Neil Stevenson our Wind Farm specialist.

The presentation will end with a bacon sandwich and an opportunity to discuss matters further on an informal basis.

If you would like to attend please contact Andrea Tobin on 01325 341507 or at@latimerhinks.co.uk. For more information please see www.latimerhinks.co.uk/events

Mobile Telephone Mast Lease Agreements - Farmers could Lose Thousands

Neil Stevenson, one of my "highly regarded" colleagues is advising farmers, who have rented out sites for mobile telephone masts, to check their legal agreements.

They may run the risk of losing much-needed income due to the current consolidation of the mobile telecoms industry.

check it out Mobile Phone Company's Mergers May Impact Upon Farmers Incomes

Top Ranked In Chambers

I, Anne Elliott have been Top Ranked in the Chambers UK directory (ranked third in Agriculture and Rural Affairs for the North East area)- it's quite a pat on the back.

For twenty years, Chambers has been a leading directory of the legal profession. Their reputation is based on the independence and objectivity research - Chambers is a reliable and respected source.

...and here is the ranking

A specialist in agricultural work and with a deep knowledge of rural matters, this firm is noted for its involvement with the Yorkshire Rural Support Network, in which capacity Anne Elliott has been raising the profile of succession planning within the farming community. Described as “forthright and knowledgeable” and one of the “key experts in the North East,” Elliott has also been appointed to the panel of the Tenant Farmers Association. She does a considerable amount of tax planning, trusts, agricultural holdings, and landlord and tenant work.

More info on Latimer Hinks services can be found here Latimer Hinks Agricultural Law

Legal 500 - the bible of the legal business recommends Latimer Hinks

The Legal 500 is the most widely used legal directory in the UK and is considered to be "the bible of the legal business". The Legal 500 ranks law firms in terms of their expertise and performance.Latimer Hinks has once again achieved recommendation - and this time more of our Partners are recognised!

Good work!

Agriculture & Estates
Clients praise Latimer Hinks’ ‘vast knowledge of agricultural law and understanding of matters influencing the market‘. Anne Elliott (me) is a ‘noted expert in the field of landlord and tenant‘, and Tim Haggie is recommended for estate management, strategy and planning. Instructions include advising farmers in negotiation with Broadview Energy over a wind farm development (which also involved Neil Stevenson) in North Yorkshire.

Personal Tax, Trusts & Probate
Anne Elliott (me again!)at Latimer Hinks is noted for her expertise in inheritance tax and capital gains tax planning.

Real Estate
Mark Clayton leads a ‘very proficient‘ team at Latimer Hinks that had a busy year advising on numerous retail properties.

Corporate & Commercial
Nick Poole heads the Latimer Hinks team, which acted on a multimillion-pound refinancing of a group of hotels. Clients acknowledge the practice as ‘one of the best in the local market‘.

Commercial Litigation
Latimer Hinks is noted for its insolvency, debt recovery and bankruptcy practice. Mark Gardner is recommended.
Legal 500 Recommendations 2007
Legal 500 Recommendations 2008

Succession Planning for Farmers - a talk!

Back in 2007 and 2008 I (Anne Elliott, Partner at Latimer Hinks Solicitors) was invited to speak at a Farming Conference targeted at succession planning for farmers and their families (and other interested parties).

Well, it must have "hit the spot" as Robert Dunning (an accountant on the platform with me) and I have been invited back to speak again on the same topic.

"Where and when?" you ask....

Thursday, 8th October 2009 at 6.30pm
The Sportman's Arms, Wath, Nr Pateley Bridge - Succession Planning

The aim is to tell a few tales to "encourage" (for which read "terrify") farmers into planning for family succession, retirement and their exit from the farming business (whether they decide to "go quietly" or die "with their boots on"!).

It will be an informal event with every opportunity given to ask questions and to seek information on all sorts of issues including Will making, family trusts, exit strategies and options.

Did you know 50% of farmers in the Yorkshire Dales haven't made a will!!

If you have a special interest in this topic (you may already advise on these issues) and live in or around the Pateley Bridge area, let me know - you may be able to come along, though numbers are limited!

Succession Planning for Farmers - Taking Control

We're writing an article for the Country Land Association on Succession Planning and I thought I'd share the final version with you.

Succession Planning - Taking Control

It's very easy for me (as a legal professional) to suggest that Succession Planning is required

BUT people are reluctant to talk about anything which involves finances, retirement, death etc. Hopefully this article will make things a little easier along with the accompanying fact sheet Succeeding at Succession.

However, it goes without saying always take expert legal advice!

Planning For Succession/Exhaustion!

Wearing two hats can be pretty exhausting !

For 10 years now I have been Marketing Partner and , in addition ,I have headed up the Private Client Dept-with not only responsibility for a dozen plus people but with a hefty workload in terms of servicing the Clients-oh and then there are the techi jobs-rewriting precedents/thinking out policy/strategy /interpreting law-old and new- etc etc

The problem is that I love both roles and wouldn't like to relinquish either!!.

This week has been a "corker" with three pretty time consuming ,work- related marketing initiatives-a Seminar on Succession Planning for Farmers which we had last night-went down like a dream/strawberries and cream!!

No 2? we are planning a Trusts Tax and Investment Seminar for the end of the month-
.....and No 3..we've hit the ground running re the May Charity Ball -invites will be out next week.
Yes ,last night went well-we had a great and informed audience and the technology behaved!!My co- speakers were very polished.

I think in such situations it is felt that I, as a farmers daughter, at least understand the farmers' usual philosophy that they are only caretakers of the land for the next genearation !!

A kindly gent even said that my passion for farming and agriculture "shone through"in my presentation

I am pretty exhausted-it feels like this week has gone on for ever -but equally exhilerated and excited-one of my IFA friends to whom I mentioned being excited about the Tax and Trusts seminar said I needed "to get out more "and everyone keeps muttering "work life balance" etc but work is part -and a big part- of life and anyone happily working for himself/herself treats work as part of life-

I'm letting my hair down this weekend-that is if I can keep awake-but it's only Wednesday and I can't yet quite see the light of the weekend!

Charity Awards for Unsung Heores

Latimer Hinks and Horwath Clark Whitehill are sponsoring the FIRST County Durham and Tees Valley Charity Awards.

The awards are aimed at recognising and celebrating the individial volunteers and fundraisers who give their time and energy to local charities.

We hope that people will nominate both their favourite charity and the inspiring people who work selflessly behind the scenes.

There are an amazing number of people in the region involved in the charity sector, from fundraisers and charity workers through to volunteers and business supporters and it is for these people the awards are intending to gain recognition.

We are all aware of the ‘grass roots’ work that is being carried out in communities across the region by local charities often operating under severe financial constraints and with little recognition.

These awards are an opportunity to promote the region’s vibrant third sector, and so we would encourage local charities to consider making an application for these awards – as the old saying goes, you’ve got to be in it to win it! - so please pass this message on.The work of the charities, within the TS, DL, DH, SR and YO postcode areas, will be acknowledged.

The ceremony will be held at Hardwick Hall Hotel, Sedgefield on November 1st.Anyone wishing to complete a nomination form should email caroline.walker@recognitionpr.co.uk or call 01325 363436. Full details are on the website http://www.durhamteesvalleycharityawards.co.uk/

Categories

1. Charity Volunteer of the year

The nominations should not include merely fundraising but for time and effort put into assisting a charity in its objectives in either frontline or back office functions. Nominations should include a description of the work involved and the importance of it to the charity concerned.

2. Charity Fundraiser of the Year

The nominations should include a description of the work and funds involved and with particular emphasis on the importance of it to the charity concerned.

3. Business Supporter of the Year

The nominations should explain what the business supporter has contributed that marks the business out as special in that charity’s experience.

4. Health and Welfare (inc Elderly) Charities

The nominations should explain what the charity has achieved that marks it out as special in its particular sector. It should include a copy of its annual report & accounts and any other appropriate documentation to support its nomination.

5. Young Person’s Charities

The nominations should explain what the charity has achieved that marks it out as special in its particular sector. It should include a copy of its annual report & accounts and any other appropriate documentation to support its nomination.

6. Education & Training Charities

The nominations should explain what the charity has achieved that marks it out as special in its particular sector. It should include a copy of its annual report & accounts and any other appropriate documentation to support its nomination.

7. Housing Charities

The nominations should explain what the charity has achieved that marks it out as special in its particular sector. It should include a copy of its annual report & accounts and any other appropriate documentation to support its nomination.

8. Local Branch of a National Charity

The nominations should explain what the branch has achieved that marks it out as special in its particular sector. It should ideally include a statement from the branches National HQ as to why the branch is worthy of nomination, with special mention of its activities, fundraising and volunteer work for the charities objectives.

Durham and Tees Valley Charity of the Year.

The winners of categories 4 – 8 will be entered into this award.

Inheritance Tax Podcast

My team of private client solicitors decided that a stint in front of the camera was required.



We therefore developed a podcast for our Inheritance Tax Planning Unit which we wanted to use to explain in layman terms what Inheritance Tax is all about - and how you can possibly avoid it!


The results can bee seen here. I must say i am NOT happy in front of the camera (and this probably shows) BUT the other members of my team were excellent.


I hope you like it

Top Ten Tax Planning Tips

As this is my first posting I thought I would start with a list of top ten tax planning tips.

We all believe we pay far too much tax, but not enough of us are actually doing anything about it!

The housing market boom has seen an increasing number of families with assets that take them over the Inheritance Tax (IHT) threshold - leaving them vulnerable to whopping tax bills.

What is the IHT threshold? - For 2007/2008 the threshold is £300,000. IHT is paid at 40% on amounts above the threshold

Here are some top tax tips for 2007 to help stop the Revenue becoming and extra beneficary of your estate. With forward planning you can minimise the tax burden and hopefully ensure that your family does not have to share your estate with the Revenue

Use the Annual Exemption of £3000 per year with a carry forward of £3000 from the previous tax year if unused. This gift is immediately exempt in the context of calculating IHT liability

Use the Small Gifts Allowance to give £250 to any one or more persons eaxh tax year, provided the gifts are not made to the same people receiving the annual exemption. For example, use the annual exemption to make gifts to three children. If they have partners and say 10 grandchildren between them, using the annual exemption and small gifts exemption you can give tax-free gifts of £6,250 each tax year.

Marriage Gifts - parents can give £5000 each, grandparents £2500 each and anyone else £1000 with no adverse IHT implications

Make Gifts Early - on death a portion of the estate, currently £300000 is charged to IHT at 0% unless substantial gifts, over and above the exemptions have been made within 7 years of dying. If you live for 7 years after amking gifts the gifts could effectively be exempt and once again there will be a full 0% tax allowance

Double Up - make sure you and your spouse or civil partner both take advantage of the allowances and exemptions by making gifts and having assets to utilise the 0% tax band

Trusts - if you don't want to lose control of the management of your capital or your children are too young to receive direct gift, consider setting up a trust. Trusts can still be very tax effective

Agricultural and Business Assets - these attract fantastic exemptions and relief

Surplus Income - give it away and do so on a regular basis and you could fall within another exemption - Lifetime Gifts out of Surplus Income. BUT keep records and establish a regular patten of gifts to satisfy the Revenue

Property Rich but Disposable Assets poor? consider taking out a mortgage to release capital to fund gifts

Consider IHT planning through certain investments - some provide excellent IHT saving opportunities. A financial adviser can help

If goes without saying that reviewing wills, investments and pension plans regularly and taking advantage of all the exemptions and allowances is vital.