As many farms today have diversified and evolved, so the opportunities to gain full agricultural property relief (APR) have become even more complicated. Alistair Millar, partner at Tallents in Southwell, looks at the key requirements to maximise reliefs for farmers.
Alistair explains:
APR is an important part of succession planning for farmers wishing to pass on the maximum amount of their assets to the next generation.
A farm is automatically included in the estate for Inheritance Tax (IHT) purposes, but if it is a working farm, then APR may allow some or all of the property to be transferred free of tax on death, as part of a trust, or even during the owner’s lifetime.
APR is restricted to the agricultural value of agricultural property. The law surrounding the application of APR has always been complicated but has recently been made more so by the changes of the Town and Country Planning Rules on developing agricultural buildings.
As a result, we would advise farmers to seek experienced legal advice to ensure careful succession planning and that you are maximising your potential relief.”
Qualifying for agricultural property relief
There are two primary qualifications that have to be met for property to gain APR: the property must be an agricultural property located in the UK, Channel Islands, Isle of Man or the European Economic Area, and be occupied for the purposes of agriculture.
However, the relaxation in the rules for Permitted Development Rights (PDRs) allowing agricultural buildings to be changed into residential dwellings has introduced another level of complexity into an already complex area of law.
Forethought and planning to maintain maximum inheritance tax relief
Alistair says:
Many farms and their buildings have already been placed in Partnership Trusts to allow the control of the farm or estate to be transferred to a new owner, while retaining maximum inheritance tax relief for all parties. However, the Trust agreement needs to be drafted so that the dispersement of any profits from newly developed buildings is very clear.
A lack of forethought and planning now might mean the inheritors could face a large tax liability at a later stage.”
Farmers should review estate planning regularly
Alistair continues:
We do advise those involved in the farming industry to regularly review their affairs to ensure that their business is structured so as to take full advantage of the relief.
If there are proposals to change the way the business is run, to raise further capital or to diversify out of agriculture we would urge you to check before implementing any changes as to whether this will have any impact upon the availability of APR and other associated reliefs.”
Alistair finishes:
You will only get the tax relief if you satisfy all the detailed conditions in the legislation. It is very easy for a genuine farming business to miss out on inheritance tax relief because a condition has not been satisfied.”
Tallents can assist with APR queries and also advise on the availability of the associated relief known as Business Property Relief.