Constant review is important, as the inheritance tax position of a farm or an estate can change from year to year. In addition, those purchasing a farm or estate should consider inheritance tax implications right from the time of purchase – setting up your affairs correctly at the outset is far easier than having to reorganise and restructure at a later date.
Alison Robinson, a partner in Saffery Champness’ Landed Estates Group outlines the main considerations:
“Agricultural Property Relief and Business Property Relief are the two main reliefs appropriate to succession planning. Availability of reliefs depends on the ownership and usage of the various elements that comprise the business – for example, in-hand and let farming; commercial woodland; let cottages; renewable energy etc.
“Agricultural operations will either generally qualify for Agricultural Property Relief at 50% or 100%, a stipulation being that the owner will have to own the land and farm himself for two years to qualify, or to own the land for seven years if another person is in agricultural occupation. A major limitation however is that such relief is based on agricultural value and does not take into account any ‘hope’ value (ie such as through future development potential).
“A safer option for the protection of assets might be Business Property Relief, the main qualifications for this being a business, or an interest in a business including an interest in a partnership, or shares in an unquoted company. The rate of relief can be either 50% or 100% depending on how the business is structured and how the assets are held. There are restrictions to these reliefs that apply to businesses that are wholly or mainly engaged in securities, land or buildings, or the making or holding of investments.
“For farms and estates, the in-hand activity of farming would not be considered an investment activity, whereas the letting of residential property would be. Therefore, it is important to regularly ascertain whether the investment or trading side of the business predominates. Where it is considered to be a trading business, then the whole will qualify, including any investment properties, whereas if holding investments is perceived as the main activity, then no relief will be available on any of the assets as Business Property Relief is an ‘all or nothing’ relief.
“If the business includes farming then Agricultural Property Relief should help to ease the inheritance tax liability. However, where there is a shoot, or a commercial woodland business, or development land with ‘hope’ value then Agricultural Property Relief will not help and, if holding investments is considered to be the main activity, a tax charge of 40% on the full non-agricultural value could be charged.”