Advice please Farm Succession inheritance tax and avoidance

[NSC]

Been searching for advice and seems to be various opinions and would like to find simple clear answers please concerning inheritance tax on succession of farm.

Have been in a shared tenancy for a while with the farm owner on a 120 acre farm as he was struggling to do all with his age. He's still active working alongside on the farm.

The farm willI be passed down to myself and need to know the inheritance tax implications. I'm well aware the farm has been run down for many years and has not been viable as only hay mown and low rental of land on grazing licence. all the buildings in serious need of repairs we know I'm probably taking on a huge liability as the farm will never be sold and will take a minimum 300k to get it how I would want it rebuilding all and will probably take the rest of my life to see it viable then handed down to mine...who will probably sell and blow the lot

if I'm in a shared tenancy with farmer so would I be liable for 40% IHT after death when I inherited if not owned by myself now?

have heard you need to own it 7 years before if not farming it myself.. or 2 years if I was?? What happens if I don’t own farm but named succession do I pay full 40%IHT I've seen a wide range of answers lately.

what allowances would the farmer owner have to pass on to successor? his wife passed away so surely her 325k allowance adds to his 325k allowance?? and also heard there’s an extra allowance you can claim on the farm property you can add?

I’ve heard that any derelict buildings are liable for 40% IHT?? as they are not now used in agriculture? There’s a couple... ive heard when you inherit they are valued for the open market sold for development to given the tax man the value and you owe 40% of that figure? We cannot afford to restore yet so can we just store farm implements and tools inside so the buildings are then used?
‘all the other buildings house machinery, tools etc so exempt right?

the farm house is still used by owner farmer and still working the farm with me so that’s exempt right?

all the vehicles, machinery, implements, all tools used on the farm....are they liable for 40% IHT on value?. do we change ownership into a business tenancy? or I purchased all now so I own all?

we understand about all other assets in bank etc are taxed 40% on the total value, what about everything in the farm house? How do they value these if hundreds of items? Do they value each or take a quick look amd try and put a total?

Any initial advice on these points would be great please, so we can try and work out the best direction we should go, farmer is obviously furious that he’s broke his back all his life paid all his taxes and vat on all he’s purchased over his lifetime and the thought me having to pay a huge tax Bill he says double taxed when I inherited is putting him mearly in an early grave

Oh sorry one more question..... And if there is a huge tax bill do we need to pay this before we can move on the farm taking immediate possession do we have time to pay the bill....dont want to be in the situation where we cannot afford to pay the bill and we are forced to sell the farm which would a real killer for me. Would rather walk away now to be honest. So all advice you can please if you have real experienced or know for sure. Yes we understand that we may need an agent on this but need to be sure the direction first.

Thanks for all your help.

 

[Goweresque]

Lets start at the beginning - what do you mean by 'shared tenancy' with 'the owner'? That doesn't make any sense. Do you mean partnership? If so do you have any formal agreement, or is this a 'You help me out on the farm and I'll leave it to you in my will' scenario?

 

[rusty]

I would think you would be eligible for Agricultural property relief on any agricultural asset. I think problems can arise on industrial let buildings, tourist accommodation etc that are not agriculture any more.

 

[Still Farming]

Register for this webinar coming also ,as may be interesting/ useful?

https://www.facebook.com/farmersweeklyuk/photos/a.72052905902/10158840672580903

 

[serf]

Keep it agricultural would be the main thing , no non farming activity on the place , as the rules stand at the min 100% APR is available but gov need cash so I guess will be subject to change soon !

 

[MrNoo]

BPR is also available and can mostly cover that not covered by APR

 

[steveR]

I really do feel that the OP need to get some very good legal and financial advice on this matter. It's going to cost, but in comparison to what the financial implications will be for getting it wrong, it'll be small beer.

Some legal outfits in the County towns will have a resident Ag and succession/inheritance expert which is a necessity in my view, and they will either have an in-house tax adviser with ag experience, or access to one. Alternatively, if the OP's accountant is good and up to speed, he can work with the Legals.

But get professional guidance ASAP...

 

[Al R]

Definitely get your accountant involved.
@Danllan

 

[NSC]

Lets start at the beginning - what do you mean by 'shared tenancy' with 'the owner'? That doesn't make any sense. Do you mean partnership? If so do you have any formal agreement, or is this a 'You help me out on the farm and I'll leave it to you in my will' scenario?

Yes we formed a simply agreement for partnership where I take no payment for helping out just incase something happened and we could prove I’ve been working on farm already.

 

[NSC]

I would think you would be eligible for Agricultural property relief on any agricultural asset. I think problems can arise on industrial let buildings, tourist accommodation etc that are not agriculture any more.

not so sure all agri assets are free tax. There’s no let buildings or anything non agricultural

 

[NSC]

Register for this webinar coming also ,as may be interesting/ useful?

https://www.facebook.com/farmersweeklyuk/photos/a.72052905902/10158840672580903

Will do. Thanks for the link

 

[Goweresque]

Yes we formed a simply agreement for partnership where I take no payment for helping out just incase something happened and we could prove I’ve been working on farm already.

There is no point 'proving you've been working on the farm already'. This is not a AHA tenancy succession situation (which if it was you would not qualify as you are not family). Your elderly friend owns the farm, and as such being in partnership with him before his death means nothing as to who inherits his estate. All that matters is the will - if there is one it will pass to the named person(s), whoever they are and regardless of whether they have ever set foot on the farm. If there is no will it will pass to either any immediate family, as per the rules of intestacy, or if no family can be found, HM Government. There is no 'succession'.

You are in the same situation many sons and daughters of farmers find themselves in, promised that they will inherit the farm in return for their years (often decades) of work on it, but with no guarantee that the promise will ultimately be kept. Sorry to break it to you but you have no 'rights' here. The old chap might be genuine and plans to leave you his farm when he dies, or he might be stringing you along, he might have kids or other family members you don't know about that he plans to leave his estate to. Or the cats home. Or he might be badly advised himself and thinks if he dies without a will that you will somehow inherit because of your partnership, which you won't.

If he has not mentioned a will in your favour, then I'm afraid you could be in for a big shock at some point down the line.

 

[NSC]

There is no point 'proving you've been working on the farm already'. This is not a AHA tenancy succession situation (which if it was you would not qualify as you are not family). Your elderly friend owns the farm, and as such being in partnership with him before his death means nothing as to who inherits his estate. All that matters is the will - if there is one it will pass to the named person(s), whoever they are and regardless of whether they have ever set foot on the farm. If there is no will it will pass to either any immediate family, as per the rules of intestacy, or if no family can be found, HM Government. There is no 'succession'.

You are in the same situation many sons and daughters of farmers find themselves in, promised that they will inherit the farm in return for their years (often decades) of work on it, but with no guarantee that the promise will ultimately be kept. Sorry to break it to you but you have no 'rights' here. The old chap might be genuine and plans to leave you his farm when he dies, or he might be stringing you along, he might have kids or other family members you don't know about that he plans to leave his estate to. Or the cats home. Or he might be badly advised himself and thinks if he dies without a will that you will somehow inherit because of your partnership, which you won't.

If he has not mentioned a will in your favour, then I'm afraid you could be in for a big shock at some point down the line.

Will is being changed as soon as I have the info in hand so it’s a go.. fully understand many owners on farms tell there son ‘it will be yours one day son’ then nothing. nope this is for sure it’s just down to me to sort which way to go. wrote in Will, lasting power of attorney to act in event of illness, executor also.

 

[deleted user 837354]

Seek professional advice, from the sounds of it an accountant and/or financial planner who knows farm business and possibly some legal advice regarding wills and concreting that side of it. Don't assume you will inherit it all just on a nod.

 

[MRT]

Seek professional advice, from the sounds of it an accountant and/or financial planner who knows farm business and possibly some legal advice regarding wills and concreting that side of it. Don't assume you will inherit it all just on a nod.

Or wing it based on what your mates and TTF collective say (don't do that go and see your accountant this is what they are for)

 

[Goweresque]

Will is being changed as soon as I have the info in hand so it’s a go.. fully understand many owners on farms tell there son ‘it will be yours one day son’ then nothing. nope this is for sure it’s just down to me to sort which way to go. wrote in Will, lasting power of attorney to act in event of illness, executor also.

In that case, on the basis that you do inherit the place, its possible not much tax could be due. The land will attract Agricultural Property relief, the business assets Business Property Relief. Biggest issue could be the value of the farmhouse, as if the land has been farmed on a grazing licence only basis for some years HMRC will be eyeing up the farmhouse as a non-business asset. Plus the dilapidated buildings could have significant non-business value under class Q development rights, if they apply in your area. A lot would depend on where it is, a dilapidated farm and 120 acres in the Home Counties is a very different valuation to the same in North Wales. One would hope that any non-business value would be covered by the IHT allowances, but without a proper valuation you can't be sure.

The best thing to do in the mean time is make sure the partnership is farming the land 'in hand', not just renting it out on grazing and mowing licences. The more the land and buildings can be shown to be in active farming use the less likelihood there is for HMRC to argue against APR or BPR on any part of the estate. Document everything, especially any work done by the old chap himself, as that may be crucial evidence to prove he was still actively farming the land. The recent decision in the case of HMRC vs Gill is very relevant to your friends situation:

Recent case rules in favour of agricultural property relief for elderly farmer - Roythornes Solicitors

The recent case of Charnley and another v HMRC [2019] has seen the law firmly placed on the side of the farmer in this important appeal against HMRC. Ben Taylor,...

www.roythorne.co.uk

 

[yellow belly]

Get a good lawyer to draw up the will
if someone else thinks they should inherit relative ect they can contest the will

all agricultural assets including the farm house on a working farm are inheritance tax free eitheR apr Or bpr

an accountant will confirm this
if you are a member of the nfu they could also help with initial advice

 

[theboytheboy]

Make sure wills, partnership agreement and any other relevant docs "mirror" each other

 

[Danllan]

Definitely get your accountant involved.
@Danllan

Nothing to add to @Goweresque's posts, other than that I only believe these things once they're proven.

 

[Exfarmer]

You need very serious advice. Goweresque is absolutely correct in his summary of prospective beneficiaries.
I do not care to think of the number children, farm workers, tenants, and others myself included who , when the will reading comes, find things are not, as was intimated.
you cannot be any part of the will making process, at least no self respecting solicitor would certainly not allow you in their office at that time, and if he did, I dread to think what else they may be up to!
If , hopefully all is genuine, you still need expert advice on the financial side of it, the taxman is taking an increasingly hard look at what is a working farm and the value of other property alongside especially the house. Others on here may know more, but it would appear that this is a hobby farm and not sure how the tax man views that.
otherwise any value over £325,000 on the persons estate will be taxed at 40% and this has to be paid with in 6 months of death. Be aware also that if there are bequests elsewhere, before tax, then it will be up to the person holding the residue to pay all the tax
To put that in context , if his gross estate is £2,000,000
The land is valued at £1,000,000 and is judged agricultural and free of tax.
The first £325,000 is also tax free
then tax of 40% of £675,000 is £270,000 as said to be paid with in 6 months