Leaving a farm in your will
What will happen to the farm if I die?
Freehold farms
If you own a farm and it is in your sole name by making a will you will normally be able to control what happens to the farm in the event that you die.
If you own a farm jointly with another person or persons then your share of the farm may automatically pass to the surviving joint owner(s) regardless of what your will says. However, this will depend upon how the farm is held.
Property can be jointly owned in one of 2 ways. The joint owners can own the property as “joint tenants” or as “tenants in common”.
If the farm is held as joint tenants if you die your share will pass automatically pass to the surviving joint tenant(s). If, however, you own the farm as tenants in common you are free to leave your share of the farm to who ever you wish in your will.
If you are the sole owner of your farm or you own the farm as a tenant in common and you don’t make a will your farm or your share in the farm will pass in accordance with the “rules of intestacy”, unless the Court exercises its power (under the Inheritance (Provision for Family and Dependants) Act 1975) to override the rules.
The rules of intestacy may result in your farm passing other than in accordance with your wishes. For this reason it is far better to make a will.
Leasehold farms
If you are a tenant under an agricultural tenancy you may be able to leave your tenancy to your family if you die. The rules relating to succession of agricultural tenancies are complex and it is recommended that appropriate advice be obtained from a specialist in this field.
Inheritance Tax implications
Inheritance Tax is a tax which is payable by the estate of a person when they die if their estate is above the Inheritance Tax threshold. Inheritance Tax is also payable sometimes on gifts or trusts made in the seven years before a person’s death. For the tax year 2010-11 the rate of Inheritance Tax payable is 40% and the threshold is £325.000.
Sometimes Inheritance Tax is not payable even where an estate exceeds the threshold. This is because there are certain exemptions and reliefs available. One of these reliefs is Agricultural Relief.
Agricultural Relief enables the owner of a working farm to pass on some or all of the property tax free either during their lifetime or in their will.
When is Agricultural Relief available?
The following criteria must be met in order for Agricultural Relief to be available:
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The property must be located in the UK, the Channel Islands, the Isle of Man or the European Economic Area.
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The property must be part of a working farm.
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The property must have been owned by you for are least 2 years before your death, or for at least 7 years if you have rented out the property.
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The property must fall within the definition of “Agricultural Property”. Agricultural property includes:
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Agricultural land and pasture;
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Farmhouses, cottages and buildings that are used for agricultural purposes (sometimes a farmhouse or cottage will still qualify for Agricultural Relief even if it isn’t occupied by someone not employed in farming) providing that they are proportionate in size to the size and nature of the faming activity;
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Woodland and buildings used for the intensive rearing of livestock or fish;
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Stud farms where horses are bred and reared (the land upon which the horses graze is included);
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Growing crops which are transferred with the land;
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Short-rotation coppice (trees that are planted and harvested at least every 10 years);
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Land that is not actively being farmed to help preserve the countryside and habitat for wild animals and birds under the “Habitat Scheme”;
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Land over which there is a milk quota;
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Certain agricultural shares and securities.
What relief is available?
Normally, if a property qualifies for Agricultural Relief, it will be given at 100%. In the case of properties rented out before 1 September 1995 normally, but not in all cases, relief will be given at 50%.