Estate Management - Fyne and dandy

Scotland. Glens, lochs and open moorland. Wide open spaces dotted with country houses. A traditional vision of country life that locals fear may be facing the latest tax threats in a recent history of uncertainty.

For once, landed estate advisory work is an area where the Big Six don’t dominate. Coopers & Lybrand is represented but a traditional local firm is as likely to handle an estate’s account – and to have done so for many years. Edinburgh-based Chiene & Tait, established for more than 100 years, claims to be one of the largest accountancy practices specialising in the agricultural and landed estate sector.

Tax management for private estates is one of the most traditional activities.

It is also an area where accountant and lawyer work side by side, in a complementary if competitive atmosphere where ultimately the client benefits.

‘In the past, lawyers probably played a larger part than accountants,’ says Ian Clark, partner with law firm Turcan Connell. ‘But when capital transfer tax came in, accountants became more involved. Now the two work together.

‘The accountants will be generally more aware of the financial aspects, for example, there are often businesses involved. The lawyers are more aware of the legal aspects affecting land, for example. Lawyers do tend to approach a problem from a slightly different angle. As a firm we get on very well with the accountants, but there is a degree of rivalry.’

The lawyers have been reorganising themselves in a way that can only strengthen their claim on the sector. This autumn, Turcan Connell de-merged from Dundas & Wilson to concentrate on private client work. The business has also taken out the equivalent department from another firm, W & J Burgess, which joined on 1 December. ‘We will be the largest private client legal firm,’ says Clark.

But what is it that clients want from their advisers? When it comes to tax, there is one issue which stands clear of any other as the key concern: capital taxes, and what the Labour government may do to them. Penal death taxes forced the break-up of many estates in the 1960s and 1970s, and avoiding inheritance tax is still a major driver for today’s owners of country estates. ‘The capital tax side is the most important one at the moment,’ says Chiene & Tait partner Martin Haldane. ‘People are certainly reviewing their position.’

Jane Clark, tax partner with Coopers & Lybrand in Edinburgh, says there is much speculation about the potential changes to the current inheritance tax system. She herself wonders whether there will be a move back towards some form of capital transfer tax. ‘It’s a big issue for people with estates,’ says Clark. One option is for owners to transfer their property into trust for their heirs, paying a commercial rent for its continued use. But that doesn’t mean they can relax. ‘They have to keep revising the rent. This is the sort if thing the big estates have to be very careful about,’ says Clark.

Some owners of significant historic houses – such as Thirlstane Castle in Lauder, Borders, and Paxton House near Berwick-upon-Tweed – have made over the main body of the building to a charity. They receive an endowment from the National Heritage Memorial Fund which trustees can use to help run the house.

One landowner concerned about the future impact of tax changes is John Noble, owner of the Ardkinglas House and estate in Argyllshire. ‘One always hopes that inheritance tax can be lowered, but I think the current government is going to tighten up and that does send slight shivers down the spine,’ he says.

The main problem for many landowners comes when they have a stately home, says Noble. Estates often get sold because of the inheritance tax bill generated by the house value. Although there is the option to get exemption through opening yourself up to the public, this isn’t possible for everyone, he points out.

First, that is itself expensive, with the costs of employing guides, for example.

‘Second, some houses are slightly out of the way or remotely placed and wouldn’t attract many people,’ he says.

Noble’s solution is to open his house by appointment. Groups of art students or members of architectural or historic societies are the typical visitors attracted.

Getting finances into shape to deal with unexpected events is another area where the financial adviser has an important role. Peter Sutton, private client partner for Deloitte & Touche, says that managing cash flow, particularly if a sudden expense crops up such as creating new slurry lagoons, is an on-going problem for estate-owners.

‘We try to build them up funds of cash, a pot on the estate, so that when these things come up they can deal with them,’ he says. That may require selling off land, something which may not be as viable for Scottish landowners as for others in the UK. ‘If you have a more remote estate you don’t have the same opportunities for selling off the outlying land and cottages, so you can’t generate a capital sum so easily,’ he explains.

ARDKINGLAS ESTATE – Has tradition had its day?

John Noble, the owner of the Ardkinglas House and estate in Argyllshire, is himself examining the full ramifications of putting his property into trust for relatives and then leasing it back, paying a commercial rent. He doesn’t see this option as being without complications.

First, there is the difficulty of establishing what a commercial rent would be in the first place.

Second, he queries, what happens if the current owner has offered the main residence as security against bank borrowings?

The Ardkinglas estate is familiar with the blows that tax liabilities can deal. When Noble’s father died the estate was subject to 70% death duties. He kept things going, developing business interests such as Loch Fyne Oysters, which is sited on the estate.

The oyster farm now has a turnover of #4.5m. But Noble is sceptical about the potential to turn a traditional estate into a profitable concern. ‘So far as a traditional highland estate is concerned, it’s a loss maker,’ says Noble. ‘Highland estates require a capital sum behind them.’