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Planning using pensions in the agricultural sector

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At this time on the farming calendar harvest, for some, is nearly over for arable farmers; they will know the yield and with it comes the cashflow for the year ahead; what is available for seed and supplies, wages, machinery and the myriad of expenditure needed to run the business.  For both livestock and arable farmers the same approach always applies, there is one eye on the immediate future and the other is looking further ahead.  The long term is, more difficult to navigate and, for farmers, the plan to pass on, across or down the family wealth which is often intertwined with the business requires careful thought.

I would like to look at using pensions as part of the planning for a farming business.  I work with several farming families and understand the concerns and priorities.  With several of my clients, the same person can wear several hats; in their business, in the family and in the pension scheme. 

I have many years experience in the specialist area of using pensions to benefit a family business.  I have prepared an example of a family farming business that is using pensions as part of their overall family plan:

George Smith is 55 and has farmed all his life.  He is a Director and majority shareholder of Smith Farms Limited

His son, James, is 30 and is a Director and minority shareholder

His daughter, Sarah is 28 and is a Director and a minority shareholder

Smith Farms Limited has been making pension contributions to the Smith Family Pension Trust. 

The company paid in £100,000 over the years from money in the business and has received £20,000 corporation tax relief (20%)

The Smith Family Pension Trust used the £100,000 to buy a building owned by Smith Farms Limited.

The Smith Family Pension Trust then leased the building to Smith Farms Limited for £10,000 per annum.

The building therefore left the balance sheet and put £100,000 cashflow back into the business – available to the family as dividends or to be used as further pension contributions.

The Smith Family Pension Trust gained a building as an asset and a rental income from Smith Farms Limited.

I set up the Smith Family Pension Trust and worked with them and their Accountant to maximise tax relief on contributions whilst keeping a careful eye on maintaining cashflow in the business.

George allotted £50,000 of the contributions into his pension and allotted the remaining £50,000 between the children; £25,000 to James and £25,000 to Sarah. 

When the Smith Family Pension Trust purchased the building from Smith Farms Limited, our commercial property team dealt with the purchase for the family and drafted the lease to meet the pension requirements.

I then used the rental income and further contributions from Smith Farms Limited to build an investment portfolio within the pension, alongside the building.

Based on a number of assumptions as an example, the Smith Family Pension Trust might grow as follows:




Assumed Future Value

Building market value at 3% p.a. 



Rental Income – assuming 5% p.a. after costs

  £10,000 p.a.


Contributions – assuming 5% p.a. after costs

  £20,000 p.a.


This assumes 10 years of compound growth at fixed assumed rates as an example of what is possible for a client.  Rates of return and growth are not guaranteed and this information is for illustrative purposes only.

Based on these assumptions of contributions and growth, the Smith Family Pension Trust might look something like this in the future when George has “retired”.

What has been achieved for the Smith family?

  • Corporation tax relief for Smith Farms Limited totalling £60,000
  • Smith Farms Limited has replaced a building on the balance sheet with cash proceeds from the sale
  • Smith Farms Limited net cost to the pension is £240,000 in contributions (net of the corporation tax relief)
  • Smith Farms Limited do pay rent but that rent is an allowable business expense on the balance sheet
  • Smith Family Pension Trust assets grow tax free – no capital gains tax on the eventual sale of the property or investments
  • With planning, the family can extract funds from the Smith Family Pension Trust to minimise tax and to suit the family circumstances.  It is also possible to ensure that any benefits not taken in lifetime are passed down the family
  • George is a Trustee of the pension and if appropriate he can also add James and Sarah as Trustees alongside him.  He has control of the scheme, within the pension rules. 

What benefits do Chattertons Wealth Management add?

  • We set up the Pension Trust and manage the tax planning alongside other professional advisers.
  • We recommend and arrange the investments within the Pension Trust.
  • We provide ongoing tax planning and investment reviews to ensure that the pension meets the family expectations.
  • We will recommend a tax efficient plan to access benefits from the Pension Trust as and when funds are needed.
  • Our Commercial Property team will liaise with us to organise the property purchase and the lease arrangement – we have a wealth of experience in this specialist area.

There is clearly a broader discussion on this area of planning, a number of other variables and further considerations to take into account.  I work with clients as individuals and tailor my initial and ongoing planning to their specific requirements and circumstances.  I would be happy to talk through any aspect of this example and how the concept might work for you.

Chattertons Wealth Management:
  • We are Independent Financial Planners - we find the best providers, funds and planning available in the market place
  • Part of a large regional legal practice
  • Multi discipline approach incorporating tax planning and financial planning alongside our legal services
  • We pride ourselves on excellent client service
  • Our focus is to build and maintain ongoing client relationships
  • We work with families, businesses, trusts, charities and pension schemes
  • We offer ongoing service options to suit individual needs
  • We offer an initial meeting at no cost to all new clients

A member of our Wills, Trusts and Probate team wrote a piece recently on Agricultural Estate Planning which may also be of interest:



If you require any further advice on this, or any other Agriculture Law matter, please contact the Chattertons Agriculture law team at your nearest office.