’tis our fast intent
To shake all cares and business from our age,
Conferring them on younger strengths while we
King Lear set about putting his affairs in order in his eighties. This article looks at what farmers might need to consider in their later years.
Lasting Powers of Attorney
The importance of Lasting Powers of Attorney (LPAs) was recently emphasised in these pages. An LPA allows you to appoint someone to act on your behalf (your attorney), and they can continue to act if you lose mental capacity.
In a business context, an LPA allows your attorney or attorneys to sign cheques on business accounts, enter into contracts on your behalf, buy and sell land, and manage your investments.
Attorneys must act in the best interests of the person who has given them authority, and to give them every opportunity to take a decision for themselves. This includes allowing them to make unwise decisions if they wish. An attorney must let an elderly farmer choose the price at which to sell corn, or decide whether to invest in new machinery, or to refuse to sell all or part of a loss-making farm, if the farmer is able to form a decision.
When creating an LPA, you should review any partnership agreement or company articles. In the event of mental incapacity, these governing documents might cause the partnership to be wound up, or lead to automatic disqualification of a company director, making the LPA less effective. How do family members wish to deal with the possibility of mental incapacity, bearing in mind that dementia can develop slowly and incrementally?
Is a farmer going to be able to satisfy the obligation to farm with good husbandry as they grow frailer? Where the farmer is the tenant of an old-style succession tenancy, would it be sensible to apply to the landlord to retire and secure a succession for the next generation?
A farm house or cottage benefits from Agricultural Property Relief (APR), an Inheritance Tax relief, when it is occupied for the purposes of agriculture. The rules are unfair when it comes to elderly farmers who have moved to a care home. If this happens, the family should consider moving another farming family member or farm worker into the farm house or cottage. An alternative is to use the building as a farm office and to hold meetings there.
It should be noted that this is not a concern for retired farm workers or their spouses occupying farm cottages – legislation expressly allows APR to the owner of the cottage in this situation.
The “new residence nil rate band” will have the effect of lifting the tax-free Inheritance Tax allowance to £1 million for a couple by 2020. This allowance tapers away where the net assets are worth more than £2 million, equivalent to a 200 acre farm. Where a farmer has retired but retains assets, there can be reason to make a deathbed gift to the next generation to reduce wealth below £2 million, to protect this valuable £200,000 tax break (rising to £350,000 by 2020) which applies to the value of the home where the home is being passed to descendants.