Agriculture: Pension changes give separating couples more optionsle

Most farmers and land owners understandably do not spend a lot of time thinking about their pensions as the majority of a farmer’s assets are land, however, forthcoming changes to pension rules mean that pensions should not be overlooked, particularly when a couple are separating.

From April 2015, if you are aged over 55 years old and have a pension you will be able to access the entire pension pot as cash, subject to tax and pension scheme charges. Previously only up to 25% of the pension fund could be taken as a lump sum (which was available tax free). The new rules mean a lot more flexibility although tax is payable on withdrawals.

When a couple separate, we have to deal with the division of their assets on divorce. Often when those assets involve a farming business or estate, one person will want to keep those assets, and so they will need to buy out the other person’s claims against it, usually by way of a lump sum payment or property transfer. We have to identify with our clients and their accountants or financial advisors, which assets should be sold to raise funds or to transfer. This can mean taking difficult decisions, not only because certain assets have sentimental value, but also because most assets on a farm, for example land and buildings, are used to produce income. If these are sold or transferred, then this can have a significant impact on the profits of the business going forward.

The new rules mean that pensions can now be used to give more options in these situations. For example, a farmer who is aged over 55 could draw cash from their pension (subject to tax), almost like a bank account, and use this towards part or all of their payment to the other person, rather than having to sell certain parcels of land. Their pension fund may not be significant, but every little helps.

Cashing in a pension fund, whether as part of divorce proceedings or as part of a retirement plan, needs careful consideration. For example, it means a source of income in retirement will be lost. Specialist advice is needed to ensure that all possible tax consequences are taken into account. Overall, this rule change will enable our clients to protect their assets as far as possible on divorce.

The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.