7 Sep 2023

Focus on: Rural Business and Landed Estates

The world of farming is complex and volatile, which makes receiving the correct advice and guidance all the more crucial. At Monahans, Andrew Perrott, Partner, heads up the Rural Business and Landed Estates team. We speak to Andrew about his work in helping farms and rural clients with their tax and accounting needs, particularly in the ever-changing taxation and farming environment.

What kind of clients do you work with?
Our client base represents a real cross section of the farming world, covering all extremes, from small dairy and arable farmers, all the way through to very large commercial farms with multiple locations and hundreds of livestock, and in some cases thousands of herds.

There are also differences as to how our clients operate. Although some businesses will function purely as farms, most will have explored some form of diversification, whether that be letting out storage facilities or installing solar panels. Others have heavily diversified, using their land to run leisure activities, farm shop complexes or garden centres, for example.

We also work with a number of landed estates – which often involves trust structures and a different set of complexities around the division of ownership and operation of benefits, alongside an ever-changing regulatory regime.

What kind of services do you offer?
Because the range of services and expertise that we offer is so broad, it allows us to support every element of an organisation’s needs – an ability that not all firms will possess. This includes collaborating with other departments who can advise on compliance, accounts audit, taxation and payroll, and more specialist domains such as complex VAT work, Inheritance Tax (IHT) considerations and Capital Gains Tax (CGT) planning.

We also advise in areas such as land sales for development, where we use our experience to help families put deals together and liaise with stakeholders to keep processes moving forward. Our team has dealt with million-pound transactions, all the way up to sales worth over £50 million, and everything in between.

In these cases, substantial work goes into foresight planning to get everything in the right structure and position, which ideally starts five to ten years before the cycle of a transaction. Next, we assist with the actual negotiations, making sure that the finances and tax stack up, before finally completing reporting or supporting gifting, after the fact.

Having specialist knowledge in corporate structures is particularly useful in these processes as we will often use a variety of structures for planning purposes. For example, my background as an audit manager is hugely beneficial in meeting the specific conditions of audited family business, which requires an understanding on how to value stock, how the lifecycles of animals work and the intricacies and family dynamics that come with that.

The value of consultative support
In the world of farming, consultative support is just as vital as technical knowhow. Much of my work centres on helping families to navigate legislation changes and talking through any issues. The nature of farming often adds levels of complexity to traditional financial planning, so having an appreciation of the full picture is crucial, for example the implications of living in a house based on the farm.

Typically, I will meet with families regularly over the course of a year to proactively help with the running of their business. This often involves discussions around succession planning and the transfer of assets, whether that's onto the next generation, a land sale to facilitate this, or restructuring to put the business in a better position. For example, we've previously incorporated businesses to give them a better structure.

Where possible we aim to pre-empt any issues before they occur, for example anticipating inheritance tax implications. But we also seek to do so on a realistic basis – after all, clients need to be able to continue to run the business on a day-to-day basis. Which is a fact that can easily be forgotten, as tax tends to eclipse all other considerations.

What challenges are your clients facing at the moment?
Within farming we are witnessing uncertainty surrounding succession planning. Whilst we know what the tax regimes are currently, it’s anyone’s guess what a new election could bring in terms of government policy. And having eight months of notice isn’t that long when it comes to putting certain strategies in place, especially when dealing with a bank where there is security to release. Therefore, we are advising our clients that they should get the ball rolling on any plans now, rather than waiting.

Another pressing issue is that of cashflow. Farmers have had some incredibly good years recently. With much of the corresponding tax becoming payable this January.

However, this year has proved more challenging for the sector, costs of inputs have increased, and those who have diversified into visitor-centric activities worry about spending levels during a cost-of-living crisis. So, we are currently helping many to manage and mitigate against the impact of this tax catch-up.

Subsidy reform is also on the docket. In the past, farmers received payments based on acreage, which gave them an underlying baseline to their income. This has been hugely beneficial, especially considering how volatile an industry farming is. Not only do farmers need to wait at least 18 months to see a return on investment on a crop or an animal, they also have no control over what the end market price will be, which makes yearly results incredibly unpredictable.

Against this backdrop it’s clear how important this subsidy has been in softening the impact of fluctuations in income. This is being replaced by payments to those who are protecting nature and delivering sustainable food production via the Countryside Stewardship and Sustainable Farming Incentive schemes.

With all of the above in mind, speaking to an advisor as early as possible is key. The longer that we are given to plan, the better chance we have in achieving a smooth process and in reducing any knock-on effects because we can tailor solutions to a business’ specific circumstances.

What makes Monahans so good at dealing with this?
Much of our value lies in our in-depth understanding of rural businesses. Being from a farming background myself I have first-hand experience of the issues facing farmers, rural businesses and landed estates. And unless you come from that background, it can be difficult to understand the family dynamics that run through its core.

As an individual in farming, you represent just one link in a long line of people and are often expected to act a custodian for the next generation. In a typical business you might be working to a lifecycle of around 10 years, where the business is built up, sold, and you move on. Whereas for a farm, you are working to a very different timeline, and your priorities lie in the proper transition to the next generation, giving them the means to continue operating successfully. And this is something that we simply get.

If you need support with your rural business or landed estate, get in touch with Andrew today, who would be more than happy to help.

Andrew Perrott