How life insurance can help address new inheritance tax liabilities for farmers

As financial advisers and legal professionals, you are at the forefront of helping your clients navigate the complex landscape of tax liabilities, especially in light of recent changes to inheritance tax (IHT) regulations. One particular area that has seen significant challenges is the farming community. The combination of rising land values and increased IHT liabilities has made estate planning more complex, particularly for families whose wealth is tied up in agricultural land.

At John Lamb Hill Oldridge, we understand the unique difficulties that farming families face and the role that professionals like you play in securing their financial future.

The life insurance industry has developed several solutions to help mitigate the impact of these new IHT liabilities, and we would like to share how these products can be leveraged to protect your clients’ estates and ensure business continuity for farming families.

1.The changing landscape of inheritance tax in the farming sector

In recent years, agricultural property has seen significant increases in value, which, combined with the complexities of the new IHT rules, can lead to substantial tax burdens for farmers. Unlike other sectors, farming businesses are often asset-rich but cash-poor, with much of the estate tied up in land, livestock, and equipment.

These increased IHT liabilities are particularly concerning for farmers who wish to pass on their business to the next generation without selling or splitting up their assets. If these liabilities are not managed properly, it could result in family farms being sold off or heavily encumbered, jeopardising the legacy of farming families.

2. Life insurance as a solution to inheritance tax liabilities

Life insurance has long been a reliable solution to help mitigate IHT liabilities, and now, with the added complexity of agricultural estates, its importance has never been greater. By integrating life insurance into estate planning, farming families can ensure that IHT liabilities are met without the need to sell off vital assets.

Here is how life insurance can assist:

Covering inheritance tax costs

A life insurance policy can provide a lump sum to cover the IHT due on a farm, helping to avoid the forced sale of land or livestock to settle the estate.

Ensuring family continuity

Life insurance policies can help ensure the farm is passed on to the next generation without the need to divide or liquidate assets, preserving family wealth and business continuity.

Tax-efficient planning

Life insurance policies can be written in trust, ensuring that the death benefit is not counted as part of the deceased’s estate for IHT purposes, further reducing the IHT burden.

3. Tailored life insurance solutions for farming estates

The life insurance industry offers several bespoke solutions for farming clients facing IHT challenges. Some of the most effective options are:

Whole-of-life insurance

A classic option for covering IHT liabilities, offering permanent protection and peace of mind for families. The death benefit is paid out when needed most, enabling families to pay IHT without selling agricultural assets.

Relevant life insurance

This tax-efficient policy can be written through the farming business itself, providing cover for key individuals (such as business owners or key employees) while also reducing the business’s exposure to IHT.

Family income benefit

This product can help provide a regular income to the family, offering financial support that can be used to cover the costs of the estate settlement, including IHT liabilities.

4. Partnering with professionals: How you can add value to your clients

As financial advisers and lawyers, you are in an ideal position to help your clients in the farming community navigate these complexities. By collaborating with life insurance providers, you can offer tailored, strategic solutions that not only address IHT liabilities but also help preserve the long-term viability of the farming business.

We recommend discussing life insurance options with your farming clients as part of their estate planning. It is essential to incorporate solutions that address the unique aspects of their business, from succession planning to the preservation of family wealth.

5. Next Steps: We are here to help

We understand that navigating the intersection of life insurance and IHT can be complex, especially in the farming sector. Our team at John Lamb Hill Oldridge is available to assist you in creating tailored insurance strategies for your farming clients.

Get in touch with us today to discuss how life insurance solutions can be integrated into your clients’ estate plans to mitigate IHT liabilities.