Gifts of agricultural property – ways to mitigate inheritance tax for farmers and farming families

Alistair Millar discusses why farming partnerships need to clearly define who owns partnership assets via a partnership agreement
September 26, 2022
Agricultural law Alistair Millar

Gifts of agricultural property

Farms and landed estates are frequently worth significant amounts of money and ensuring that the maximum value is passed on to beneficiaries can be very complicated, notes Alistair Millar, an agricultural law specialist from Tallents Solicitors.

However, with careful forward planning there are a number of ways to mitigate inheritance tax (IHT) and pass on wealth in tax efficient ways, which will help to secure the future of the farm. This can be done through gifts of agricultural property.

Gifts of agricultural property to individuals

Agricultural Property Relief (APR) is often relied up on by farmers to pass on some agricultural property (e.g. land and pasture used for grow crops or rear animals, farm buildings, farm cottages and farmhouses) free of IHT, however it must have been occupied for agricultural purposes and been owned for the requisite period of time to qualify for APR.

Alistair comments that gifts of agricultural property can be made during the donor’s lifetime, or as part of a will, however, if a gift is made and the recipient disposes of the property before the donor’s death, the APR will be reclaimed. Additionally, if the donor dies within seven years of the gift, then IHT may also become due.

Gifts of agricultural property via a trust

Trusts are flexible devices used to:

  • leave assets which have increased significantly in value since they were acquired, without paying Capital Gains Tax,
  • remove assets from an estate, so they do not attract inheritance tax or form part of any financial assessment,
  • protect family wealth from IHT,
  • retain control and management of the assets,
  • hold assets on behalf of minors.

The gifts of money, property or land can be placed in a trust made in a lifetime, or created in a will upon death, and your trustees decide who benefits, when they benefit and to what extent they will benefit from the assets in the trust.

It’s important that the value of the gift made into a trust should also be taken into account, as depending on the IHT nil rate band in force on the date of the donor’s death, the gift might not be deductible from the donor’s IHT liability, leaving the full nil rate band for deduction against the estate. This is a factor which should be taken into consideration when deciding on how to make gifts of agricultural property.

Gifts of agricultural property – navigate this complex area of agricultural law with professional advice

Alistair finishes: Given the complexity of farming set ups and the potential significant values of the estates and assets involved, legal advice should be sought sooner rather than later to explore all the options available.

There are several different types of trusts, so it also makes sense to speak to a legal professional to ensure the right trust is chosen for the desired end result which does not affect the potential APR available, or any other tax reliefs which could be due on the farm.

If you would like to discuss your personal circumstances, please call 01636 671881 to speak to Alistair in confidence.

Agricultural Property Relief (APR) gifts of agricultural property Gifts of agricultural property to individuals Gifts of agricultural property via a trust mitigating inheritance tax for farmers
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