A look at landed estates

Date: 06 Mar 2024

Ashleigh John

This week, Citywealth examines the current trends and concerns for landed estates and their owners. Industry experts discuss inheritance considerations, environmental impacts, and more.

Citywealth spoke to experts in the landed estates sector to get a real-time overview of the industry. What can we expect to see at the forefront this year? How is ongoing political and economic uncertainty shaping client instructions? Are there any legal and/or regulatory changes that are impacting this area that the wider industry should be aware of? The experts we spoke to answer these questions, and provide their best advice on effectively managing the complexity of a landed estate, below.

Contributing to this article, we have the following experts:

• Lauren Parker, Partner at Mills & Reeve. Lauren is a partner in the private client team and specialises in advising landed estates and land consortia. Her work includes complex trust restructuring, succession planning, business structuring to secure inheritance tax and capital gains tax reliefs, conditional exemption claims and land pooling arrangements.  Lauren regularly collaborates with colleagues to advise on strategic land development and patient capital investment. She is also a member of the Country Land and Business Association.
• Paula Steele, Director at John Lamb Hill Oldridge. Paula has responsibility for JLHO’s landed estate clients. Having worked in financial services for over 40 years she has extensive knowledge and expertise across all areas of financial planning. Her focus is now centred on life assurance and later life planning where she specialises in resolving complex issues for individuals and their families. Paula’s exceptional technical knowledge means she is often sought out by clients and other professionals for advice on wider planning and trust matters. In particular, Paula provides ongoing support and advice as part of a wider team of trusted advisers to many landed estates on their UK tax and structuring.
• Charles Hancock, Senior Associate at Forsters. Charles is a Senior Associate in the Private Client team. He advises the owners of landed estates on how to hold and retain family assets and businesses and the effective transfer to successive generations. He provides strategic advice, putting in place structures to maximise agricultural and business property relief, and has a particular interest in heritage property taxation. Charles also advises entrepreneurs and international families, creating and administering trusts, partnerships and other corporate vehicles, which often involve cross-border tax issues and assets in multiple jurisdictions.

What current ‘trends’ or approaches to landed estate management have you seen or been utilising recently? 

Charles Hancock said: “With ongoing pressure on traditional methods of farming, from changes in climate to government policy and prices, land-owning clients are looking at alternative means from which to generate income. One example of this is the Government’s post-Brexit support for farmers and landowners, which has moved away from the Basic Payment Scheme (BPS) to Environmental Land Management Schemes (ELMS): ‘public money for public goods

Lauren Parker also commented  on the loss of BPS payments, affirming that “clients are focusing on how they can replace this lost income through a combination of the ELM scheme and private sector contracts for biodiversity net gain (BNG) and carbon sequestration (known as “stacking and bundling”).” She added: “A significant number of clients are collaborating with their neighbours as part of the Landscape Recovery scheme (one of the ELM schemes).”

Paula Steele said: “There has been an increase in the use of external agents, replacing the in-house agents.  The external agents tend to offer a wider range of services and bring a wider perspective in terms of what other estates are doing – so you see outsourcing of farming to farming partnerships etc.  we also see estates being passed to the younger generation at a younger age, not only on death with the older generation being able to “enjoy” retirement which didn’t really happen in the past.”

What concerns have your clients brought to you recently? How is political and economic uncertainty impacting estate planning for them?  

ESG is affecting everything, and Lauren Parker commented on how environmentally-conscious changes affect tax concerns. She said: “There’s uncertainty around how a shift from farming for food to farming for nature will impact on tax reliefs, particularly for inheritance tax. Will the land still be regarded as agricultural and trading, or will it be seen as a non-agricultural investment asset? The Government consultation on the taxation of environmental land closed last June but the feedback is still being analysed. For those looking to take substantial areas of land out of (generally unproductive) food production, the lack of certainty on the tax treatment is holding them back.  I’d like to see the legislation updated to specifically provide that putting land into the new ELM schemes will not change its tax status (as we had for the old set-aside schemes). The natural capital and carbon markets are in the embryonic stage.  For example, there is a lack of regulation around how you measure soil carbon and no single established model.  Pricing is also difficult but as the BNG and carbon markets develop, the price per unit should start to settle. This uncertainty means that many clients would prefer to be close followers than trailblazers.”

Paula Steele provided the two sides of the coin when it comes to losing APR: “On the positive side many clients are the beneficiaries of the loosening of residential planning laws and are looking to re-zone part of their land for housing with significant uplifts in value, although the land will then lose its APR. On the negative side there is concern that APR may be abolished giving estates very significantly increased IHT liabilities – in addition many estates have large housing estates of let houses and cottages and changes to the Landlord and Tenant Act impact on them negatively.”

Charles Hancock summarised: “The overriding priority for most landed estate owners is to safeguard their land and businesses for future generations, ideally passing them on in better shape than when they took them on.  The fragile social and political landscape, plus the intricacies of the various tax regimes, can make this challenging. Long-term planning – including through the careful drafting of wills and prenuptial agreements, having the right trusts, partnerships or other structures in place and knowing when to move property on – is essential.”

Have there been any recent regulation changes or legal cases that are affecting this area that clients and wealth managers should be aware of?   

Lauren Parker provided some background: “Not recent but to set the scene, BPS will be phased out by 2028 and the ELM scheme was introduced by the Agriculture Act 2020.  The Environment Act 2021 made BNG mandatory from 12 February 2024 for all but small sites and some exemptions.  With many private sector businesses committing to net zero, they are looking to invest in schemes through which they can offset their residual carbon footprint.  There will, I think, be a shift towards collaboration between landowners and private sector businesses as the latter look to invest in carbon sequestration schemes.”

Charles Hancock commented on an issue that has arisen following the vote to Leave: “In the wake of Brexit, Government schemes introduced as successors to the removal of EU subsidies have shifted the focus away from agricultural activities towards environmental land stewardship. However, tax in the rural economy, particularly Agricultural Property Relief (APR) under the inheritance tax (IHT) regime, has not evolved to reflect this change of emphasis.  This leaves the rural sector operating in tax and subsidy frameworks with little clarity and conflicting incentives. As a firm, Forsters have responded to the recent Consultation on Agricultural Property Relief and natural capital and we await the Government’s response.”

Landed estates are often complex beasts; what advice do you have for effectively managing and finding the balance between the business side of the estate and the familial, personal side? 

Lauren Parker: “My advice to clients is to set and communicate clear objectives and guiding principles whilst remaining open to change.  Sometimes the family/personal side (e.g. the wish for privacy) will take priority over the potential to monetise assets (e.g. through opening the main house for events).  It’s then necessary to consider alternative streams of income and be realistic about how many generations the estate can sustain.”

Paula Steele: “Many of the estates will pass on a male primogeniture basis and this has ensured that many of the estates have remained intact for many generations. Families are increasingly concerned to ensure that the “right” person takes over running the estate (which may not be the eldest son), but more importantly recognise that the “other” children are disadvantaged by this and families  are increasingly concerned to try to even up assets across all the children – this changes their level of re-investment in the estate with them looking to take surplus assets/income and redirect to the other siblings.”

“In the older estates there is normally a very good understanding across all generations that the assets and the responsibility will pass to the eldest son which goes a long way to mitigate the feeling that the whole is “unfair”. The large estates require the generation who are running the estate to sublimate the rest of their lives to the estate and this can be tough.”

Charles Hancock: “Each element of a landed estate needs to be seen in the context of the wider family and estate business, and the medium to long-term objectives.  Strategic advice can make the critical difference; with the right support, families and landowners can help future generations to carry on establishing, enhancing and preserving their estates.”

Thank you to all of the experts who contributed to this article.