IHT and Succession Planning - Is there a difference?

I am finding more and more often that clients are mistaking Inheritance Tax Planning for Succession Planning.  Certainly a carefully thought out succession plan needs to include prudent tax planning but the two are not the same and I fear that succession planning, particularly in farming, is still not receiving the attention it rightly deserves.

As most readers will know each UK resident adult has a nil rate tax band for inheritance tax purposes of £325k with an additional new transferable main residence allowance of £100k being introduced in April 2017, which will increase to £175k per person by 2020/21.  This allowance can be rolled over when an estate passes between husband and wife meaning that in the future there may be £1 mill allowance available to the surviving spouse in  certain circumstances.  Quite attractive to many people, I think. But when it comes to a family farming business this might not be so exciting and hence the drive by many to make plans to minimise or mitigate any future tax liability.

However at the forefront of any effective succession plan (as opposed to a tax plan) is a clear understanding of the difference between inheritance, the transfer of ownership, and succession, the transfer of managerial control and it is, undoubtedly, the emotive and subjective element of control that is the stumbling block.

If we think succession planning in the UK is lacking, we only need to look across the water to the States to see the real extent of the succession problem.  The nil rate tax band over there is $5.45 mill per person (approx. £4.4 mill at today’s rate) before any federal estate or gift tax liability.  The farm we recently visited in New York State remains in full ownership of Grandpa, now in his 90’s and enjoying the Florida sun, leaving the farm with no real future direction and children in their 60’s with no idea of what they may or may not inherit.  Less than ideal.

The real issue is one of open discussion between the key protagonists and I am the first to appreciate how difficult this can be.  But it has to be addressed and the sooner the better.  If you need help initiating this difficult conversation ring me for a free-of-charge initial consultation.  Let’s start the conversation.

Louise Taylor MA, MSc, Dip HRD is a Partner is Barbers Rural and specialises in Succession Planning.