Inheritance tax
- Thread starter Morganwyn
- Start date
Hi Morgan,
There is something called Agricultural Property Relief (APR), which can provide relief from Inheritance Tax if certain criteria are met. There are different timing considerations depending on who is actually farming the land.
I would recommend having a look at the HMRC guidance on IHT and APR to get an idea of the principles, but if you are looking at longer term planning then your best bet is to speak to a specialist accountant or other advisor who can discuss the situation in more detail and provide advice if necessary.
There is something called Agricultural Property Relief (APR), which can provide relief from Inheritance Tax if certain criteria are met. There are different timing considerations depending on who is actually farming the land.
I would recommend having a look at the HMRC guidance on IHT and APR to get an idea of the principles, but if you are looking at longer term planning then your best bet is to speak to a specialist accountant or other advisor who can discuss the situation in more detail and provide advice if necessary.
- Location
- South Shropshire
Basically, subject to a qualifying period of up to a few years, land farmed in hand is subject to APR at 100%.
Land let after 1995 is subject to APR at 100%, even succession tenancies under the 1986 AHA, subject again to a qualifying period.
Land let on a tenancy starting before 1995 (edited) is usually subject to 50% APR, but the rules are complicated.
Farmhouses and buildings used in agriculture can also get relief.
Buildings let commercially, farmhouses occupied by a landowner letting out the land, and farm cottages let to people not working on the land May not get relief.
Get advice from a qualified professional.
Land let after 1995 is subject to APR at 100%, even succession tenancies under the 1986 AHA, subject again to a qualifying period.
Land let on a tenancy starting before 1995 (edited) is usually subject to 50% APR, but the rules are complicated.
Farmhouses and buildings used in agriculture can also get relief.
Buildings let commercially, farmhouses occupied by a landowner letting out the land, and farm cottages let to people not working on the land May not get relief.
Get advice from a qualified professional.
- Location
- South Shropshire
There are also reliefs for business assets.
The amounts of tax can be very high if you get it wrong - you do need to speak to a professional (pref one who specialises in the field)
There is a suggestion that the rules on APR will be tightened in the future - a combination of a government that needs money and some high net worth individuals using farmland as a tax shelter.
There is a suggestion that the rules on APR will be tightened in the future - a combination of a government that needs money and some high net worth individuals using farmland as a tax shelter.
Kryten
Member
- Location
- South Derbyshire
You need a chat with Grandad!
farmerm
Member
- Location
- Shropshire
Starting from the basics, inheritance tax to not a tax on inheritance its a tax on ones assets at death. It is normally paid from funds released from the value of the estate, not by those who receive an inheritance.
When Granddad shuffles off the value of all his assets ie, cash, land, property, shares, pensions, sports cars and Picassos must be assessed. If the sum of this calculation is less than £325,000 there is no tax to pay on the estate. If granddad has a 1 bed flat, £4 in savings and 2 acres of land then nothing to worry about, tax man isnt having any of it... but if the estate is valued over £325,000 then the 40% tax may apply on the value of assets above this thereshold...
Then it gets more complex.. if houses are given to children or grand children this can increase the threshold to £500,000. Spouses can pass their share to the surviving partner... if Grandma has already passed Grandad away and his home is passed to children or grandchildren then there may be as much as £100,000 before any IHT liability.
If gramps assets are exceed his IHT threshold, which might be £325K, £500K or £1million as outlined about, then APR/BPR relief will come in to play to lesson the tax bill. There are various requirements to qualify so it is important to check and if necessary make changes asap..
Be mindful there are oddities in the eligibility for APR relief. Land used by stud farms breeding and rearing horses is eligible for APR but land that is "keeping" horses is disqualified from claiming APR.
Either rented out to a third party or farmed by yourself the APR eligibility should be the same I would think. Also watch on old farm building, especially any with any hint of conversion potential.. Regardless if it is a grazing tenant or yourself it is better any such structure is seen to be in "use for farming purposes" even if just storage of farm machinery or fodder. If not HMRC might wish to discount them for APR relief and value them as an asset with development "hope" value.
It would be worth a short discussion about this with your accountant...
Of course grandad might leave all his assets to the local cats home rather than his decedents, in which case you have no worries....
www.gov.uk
www.gov.uk
When Granddad shuffles off the value of all his assets ie, cash, land, property, shares, pensions, sports cars and Picassos must be assessed. If the sum of this calculation is less than £325,000 there is no tax to pay on the estate. If granddad has a 1 bed flat, £4 in savings and 2 acres of land then nothing to worry about, tax man isnt having any of it... but if the estate is valued over £325,000 then the 40% tax may apply on the value of assets above this thereshold...
Then it gets more complex.. if houses are given to children or grand children this can increase the threshold to £500,000. Spouses can pass their share to the surviving partner... if Grandma has already passed Grandad away and his home is passed to children or grandchildren then there may be as much as £100,000 before any IHT liability.
If gramps assets are exceed his IHT threshold, which might be £325K, £500K or £1million as outlined about, then APR/BPR relief will come in to play to lesson the tax bill. There are various requirements to qualify so it is important to check and if necessary make changes asap..
Be mindful there are oddities in the eligibility for APR relief. Land used by stud farms breeding and rearing horses is eligible for APR but land that is "keeping" horses is disqualified from claiming APR.
Either rented out to a third party or farmed by yourself the APR eligibility should be the same I would think. Also watch on old farm building, especially any with any hint of conversion potential.. Regardless if it is a grazing tenant or yourself it is better any such structure is seen to be in "use for farming purposes" even if just storage of farm machinery or fodder. If not HMRC might wish to discount them for APR relief and value them as an asset with development "hope" value.
It would be worth a short discussion about this with your accountant...
Of course grandad might leave all his assets to the local cats home rather than his decedents, in which case you have no worries....
How Inheritance Tax works: thresholds, rules and allowances
Inheritance Tax (IHT) is paid when a person's estate is worth more than £325,000 when they die - exemptions, passing on property. Sometimes known as death duties.
Agricultural Relief for Inheritance Tax
Work out whether assets in an estate qualify for Agricultural Relief and the rate at which it is due.
As has been said above, this is a complex area and spending some money now on professional advice may well save a fortune in the future.
In summary, any chargeable assets the deceased has over the value of £325,000 is taxed at 40%. Note the use of the word 'chargeable'. It is possible that some assets may attract exemptions and not be chargeable to inheritance tax. One of the most common exemptions is for agricultural land.
If someone is farming, then two possible exemptions come into play - Agricultural Property Relief (APR) and Business Property Relief (BPR). The latter is much more generous.
If the person owning the land is letting the land out, then they may be able to claim APR - I say 'may' as there are requirements for how long they have been doing it, anything up to 7 years, before they qualify. APR will exempt the agricultural value of the assets. That will be the value of the land as agricultural land and the value of the farmhouse - provided the farmhouse is in keeping with the size and nature of the farm. If the house is deemed too big for the farm, then only part of its value will be exempted. APR will not exempt other assets on the farm like building sites.
If the person is actively farming the land, then they will be entitled to BPR. The activity must be actual farming and not just taking care of your investment. So they will expect to see animals, crops, etc, and not just a claim for repairing the odd fence and for someone else's animals to be running on the land. BPR will exempt the full value of the land, including things like building sites, etc.
The difference in APR and BPR is set out starkly in the case of McClean Deceased and HMRC.
McClean farmed 36 acres on the edge of a town. He died and his wife inherited it and continued to 'farm' it by conacre. An Irish term for the short term letting of land - 364 day lets. The wife moved off the farm and lived with a relative down South. The son carried out care and maintenance activities - fencing, hedge cutting, cleaning drains, etc. However, someone else put their animals on the land and grazed it.
When the wife died they claimed BPR and said there was no tax to pay. HMRC disagreed. They said that the activity only justified APR on the agricultural value. The 36 acre farm was roughly valued at £400k for agricultural value. However, the farm was on the edge of a town and inside the development limit and HMRC said its value as a development site was something like £5m. So HMRC's calculation was £5m minus £325k nil rate band minus £400k APR exemption equals a chargeable value of £4.25m. Taxed at 40% they wanted £1.6m in tax. The farm had to be sold and the tax paid before anyone could inherit anything. There is a lot of rounding in my figures, but you get the idea. Getting it wrong could be very expensive.
The McClean case was followed up with the Evelyn case. Here there was a clear distinction made between being in business and merely carrying out work to protect an investment. The two cases were well chosen by HMRC, who will only continue to tighten up on reliefs like BPR and APR.
You must take legal advice on areas like this. Getting it wrong could be very expensive in terms of tax to be paid.
McClean case summary - https://library.croneri.co.uk/cch_uk/btc/2009-btc-8059
Evelyn case summary - https://www.casemine.com/judgement/uk/5b2897d52c94e06b9e19bf9f
farmerm
Member
- Location
- Shropshire
Did the Mclean farm make the £5 million estimated by HMRC when it was sold? I think the wife would have inherited the husbands nil rate allowance so the calculation would likely have been £5mil less £650,000 nil rate rather than £325,000, though finding £1.3m would be no easier than finding £1.6million. The simple lesson is the difference between investing a bit of time (and not inconsiderable money) into good inheritance planning compared to not doing so can produce a colossal difference in the amount of tax, especially where there is any potential for development. A lot of land owners forget that APR does not provide anywhere near enough relief to cover the value of land with any development potential.
I never heard what it finally sold for. I guess that is a private family matter.
As I said, I rounded a lot of figures, but the example does show what it can cost to get it wrong.
A thousand or two to an accountant or solicitor now may seem expensive or outrageous, but look very cheap compared to the tax bill that could land if you get things wrong.