Like many farming families, David and Margaret had spent a lifetime building a successful agricultural business. Over several decades, their wealth had become closely intertwined with the farm itself, including land held personally, a profitable farming partnership, retained business profits and a pension scheme that owned a substantial area of farmland leased back to the farming operation.
For many years, they were comfortable that a combination of Agricultural Property Relief (APR), Business Property Relief (BPR) and the favourable inheritance tax treatment of pension funds would support the efficient transfer of wealth to the next generation.
However, changes to the inheritance tax treatment of agricultural assets, business interests and pension wealth prompted them to review their long-term plans.
When their advisers modelled the family's position under the new rules, it became clear that maintaining existing arrangements without adjustment might no longer align with their objectives. Their combined estates remained significantly larger than they were comfortable with, and a substantial pension fund that had previously been viewed as an effective estate planning asset was no longer offering the same potential advantages.
Rather than waiting and hoping for future changes, they decided to take proactive steps.
Making better use of business capital
The first stage involved reviewing the cash reserves held within the farming business.
Over the years, the farm had generated healthy profits and accumulated substantial cash balances. At the same time, David and Margaret's pension scheme owned several parcels of farmland that were actively farmed by the business.
Following professional advice, a decision was made for the farming business to purchase some of this land from the pension scheme at market value. This enabled surplus cash within the business to be converted into a productive farming asset while simultaneously releasing capital from the pension structure.
The transaction delivered several benefits.
The farm increased its direct ownership of agricultural land, strengthening the long-term asset base of the business. Meanwhile, the pension scheme gained liquidity that could be used more flexibly to support retirement planning in later life.
Importantly, the land remained within the wider family farming operation, preserving continuity while improving overall asset positioning.
Beginning the succession journey
Following the restructuring, attention turned to succession planning.
A review of the family's overall position indicated that additional planning could help support their objective of passing the farm efficiently to the next generation while retaining financial security in retirement.
As a result, David and Margaret began a phased programme of lifetime gifting.
Over a number of years, parcels of farmland were transferred to their children as part of a structured succession plan. This approach gradually reduced the value of their estates while increasing the next generation's ownership and involvement in the farming business.
The transfers were carefully managed to ensure the farm continued to operate as a single cohesive enterprise. While ownership evolved over time, the land remained integral to the family's agricultural operation.
Equally important, the gradual nature of the transition allowed David and Margaret to remain actively involved in key decisions, providing valuable guidance and oversight as responsibilities passed to the next generation.
Rethinking the role of the pension
The sale of land from the pension scheme had generated significant cash within the pension itself.
Historically, David and Margaret had intended to leave as much of their pension untouched as possible. However, in light of the changing inheritance tax landscape, retaining large pension balances no longer appeared to offer the same planning benefits as before.
Instead, they adopted a gradual drawdown strategy.
By drawing income from the pension, they were able to support their retirement lifestyle without extracting as much cash from the farming business. This helped preserve working capital within the farm, creating greater flexibility for investment in machinery, infrastructure and future growth opportunities.
The revised strategy also created an additional planning opportunity.
As further parcels of farmland became available within the pension structure, the family continued transferring ownership into direct family hands over time.
Pension withdrawals provided personal liquidity and reduced pressure on the business to fund retirement needs. At the same time, the farming enterprise was able to continue acquiring assets that supported its long-term operational and strategic objectives.
The outcome
The result was a more resilient succession plan that balanced retirement needs, family objectives and the future of the farming business.
David and Margaret improved intergenerational ownership arrangements, made more effective use of both business and pension assets, and took meaningful steps towards reducing the potential inheritance tax burden on future generations.
Most importantly, they established a framework that supports the long-term continuity of the family farm while providing their children with increasing ownership, responsibility and involvement in the business.
By acting early and reviewing their plans in response to changing legislation, they were able to strengthen the future of the farming enterprise while retaining flexibility for whatever challenges and opportunities may arise.
Key takeaway
Changes to the inheritance tax treatment of agricultural assets, business interests and pension wealth mean many farming families should revisit succession plans that may have worked effectively under previous rules.
In this example, a combination of pension restructuring, strategic land transfers, lifetime gifting and careful use of business cash reserves helped improve succession planning while supporting the long-term viability of the farming business.
Early planning, regular reviews and professional advice were central to achieving these outcomes.
Names, figures and circumstances have been altered within this case study for illustrative purposes. It does not constitute financial, legal or tax advice. Individual circumstances vary, and professional advice should always be sought before taking any action.
*the views expressed are the author’s and not ICAEW’s
