There has been a lot of talk of Inheritance Tax (“IHT”) in the media recently due to the Government’s proposal to create an additional tax free individual allowance which will be deductible against the value of a residential property in an estate when someone has died. We await further details of the proposals to know exactly how this will work in practice. However in many cases for families holding agricultural property the importance of Agricultural Property Relief (“APR”) from IHT will undoubtedly remain crucial.
APR is intended to prevent IHT from being a burden on farming families. Without the relief, in order for families to pay the IHT they would often be forced into the sale of main assets from which the family draws income. Unfortunately APR is complex and its benefits are not always guaranteed for farming families. In certain circumstances the law can lead to arguably unfair results which highlight the need for careful estate planning.
One of the key issues that families face is whether or not a farmhouse will benefit from the relief. There have been many legal cases dealing with what exactly constitutes a farmhouse which have looked at a variety of factors. Crucially a farmhouse must be occupied “for the purpose of agriculture” under the legislation.
In some cases this will be clear; for example if a farmer dies having run the administrative side of the farming business from an office located in the farmhouse until his or her death. In other cases occupation for the purpose of agriculture becomes very difficult to prove. For example what happens if a farmer having retired initially allows the farming business to be conducted from the farmhouse but is forced in his latter years to vacate the home to live in residential care? Further, what is the position if the farm is owned in partnership and the partner living in the farmhouse only has a minor interest in the business? This in itself can have an impact on whether the farmhouse is deemed of a character appropriate to the land.
As I have previously mentioned, the IHT rules are likely to change in the near future due to recent government policy. Whilst this does not directly affect APR, what it highlights is that the tax rules are fluid and are almost certainly likely to change again at some point in the future as governments change over the years. Whilst currently APR is sometimes available (although as I have pointed out this is not always guaranteed) in the future this may not always be the case. With this in mind a Will can include the use of trusts to take advantage of any APR upon death. This will create more certainty for future generations and help prevent them being affected by future changes to the tax rules.
If you have any questions regarding IHT or APR and how these may affect you, or any other private client matter, please contact Mark Shaw on 01756 692 886 or email email@example.com