Succession planning and disputes over inheritance expectations

10 September 2018

Succession Planning and Inheritance Tax Issues Ellacotts

Succession planning is never easy and if not properly considered and discussed with all involved, disputes over inheritance expectations can arise, with potentially serious implications for the family, property and business.

Recent years have seen several cases resulting in sons or daughters making a claim on a farm, where farms have been “promised” but then never received. A claim could be made either on the parent’s death or where minds are changed in lifetime such as in Davies v Davies (2016). This case led to parents paying £500,000 to their daughter to compensate her for her loss suffered. 

The latest case of Gee v Gee & Anor (11 June 2018) concerned a farm in Oxfordshire. A father and one of his sons disputed the ownership of the family farm. The son had worked on the farm for around 40 years and claimed that his father had repeatedly promised that he would inherit the “lion’s share” of the farm. The son had spent his working life on the farm, working long hours for low wages. After a family feud, the father transferred the farm to one of his other sons.

The court found that promises had been made to the son about him inheriting the farm, which the son had relied upon to his detriment. The son was awarded a 52% share of the family company and a 46% share of the farmland. 

Claims of this type are known as a proprietary estoppel claim. The key elements of such claims are as follows:

  • A representation or an assurance has been made of sufficient clarity, e.g. making a promise that one day your child will inherit the farm
  • Reliance on it by the claimant, e.g. the child spends their working life on the farm for a low wage
  • A loss of some kind is suffered as a result of the promise being broken, e.g. the child does not inherit the farm as promised and has effectively forgone the chance of some other opportunity

Within the farming community, it is customary for children to work long hours on the family farm for little return, in the belief that one day they will inherit the farm. This makes the farming industry high risk for proprietary estoppel cases.

Inheritance Tax and succession planning go hand in hand. It is essential that you are clear about your intentions and open discussions are had with all involved.

The Ellacotts team understand the challenges farming and landowning families face and regularly assist with these discussions. With proper structures in place, a farming business can be passed down in a way which is both tax efficient and meets the wishes of all involved. Please contact Joanne Wright on jwright@ellacotts.co.uk or 01536 646000 if you wish to discuss succession planning for your family and business.