Funding for farm succession

It is no longer simple for a farmer to ensure that their descendants inherit their land and assets in full. The need to pay out large sums to the taxman whenever the title to the land changes hands makes it hard to keep a farm within the family.

However, there are ways for farmers to ensure that their descendants can take over their land. Alternatively, if you are retiring, transferring your farm to the next generation below market value, and wanting to keep some of your capital there are solutions for that too.

Passing wealth down from one generation to another can happen in several ways. 

Executors will need to pay tax on the estate’s value. This can put pressure on the executors to liquidate the estate quickly and can result in the breaking-up of the family farm.

The threshold for inheritance tax is £325,000, anything above this value is taxed at 40%. This means that a farm with a value of half a million pounds would be presented with a tax bill of £30,000. Because the value of a farm is typically tied up in land and equipment, meeting this bill will almost certainly require the sale of some of the farm’s assets. 

What’s more, the inheritance tax bill must be paid within 6 months.

This means that if buyers know that the seller has a 6-month time limit to complete the sale, they may attempt to force a bargain price since the seller must complete the sale.

Short-term Secured Loans are an ideal method of bridging the gap when a debt becomes due, and funds become available. They can be ideal for executors, allowing them to raise funds on the estate to allow the best deals to be arranged.

The other situation - when a retiring farmer wants to pass on land at below-market price can also cause problems when mortgage valuations and asking prices are significantly different.

In both cases, Bridging Loans can provide the answer.

What is a Bridging Loan?

Bridging Loans are short-term loans which are, most commonly, secured on property. They are so-called because they “bridge the gap” until long-term finances can be put in place.

Bridging Finance is often used to buy the property it is secured on, but it can also be used to raise funds on a property that is already owned, providing a cost-effective solution for raising cash. So, you could take out a Bridge Loan to pay a bill from the taxman. Bridging Finance can be secured against nearly any asset, although property is most often used as the security. Some lenders will accept a second charge security, meaning that the loan can be against property already subject to a finance arrangement such as a mortgage.

Unlike high street banks, bridging lenders can turn a loan from application to approval in a very short space of time - often less than a week, and sometimes in as little as 48 hours.

Several factors will influence the cost of a Bridging Loan, including your “exit strategy” - this is how you intend to repay the loan.

You could raise funding on the farmhouse to provide the means to pay the inheritance tax on the entire farm estate. Exit strategies can include a mortgage to provide a long-term solution, the sale of part of the land or a loan secured on future profits from the farm business. Bridging providers will work flexibly with their customers to determine whether their exit strategy is viable. In addition to a monthly interest cost, lenders may charge a lender arrangement fee – a fee for setting up the loan.

All costs will be pre-agreed when the loan agreed.

Why you need Rangewell to set up a Farm Succession Loan

Like all Bridging Loans, Farm Succession Funding can be set up fast to let you deal with the urgent funding needs triggered by bereavement. But unless you have expert help, you can find it difficult to get the best deal. 

At Rangewell, we can help you find the most competitive deal for the loan you want.

Our knowledge can not only help you secure the funding you need for your farm - it can save you a great deal of cash.

Remember, Bridging Loans are intended for short-term use. We not only have the expertise to help you use them as a tactical source of funding for the short-term, but we can also work to find the most competitive source of funding to replace them over the long-term.

Our knowledge of funding solutions for the property sector can be an important asset for your business - from restructuring your farm to buying land. Call us to find out more.