Farm Diversification - Inheritance Tax Implications

John Cooke, Director of the Rural Law Practice at Thomson Hayton Winkley, recently spoke at a seminar on Farm Diversification. One of the key messages from all speakers was to think and plan ahead, because actions you take now might have a bearing on your estate in the event of your death.

Inheritance Tax planning is important and one area that must be considered when thinking of diversifying is whether it will affect the right to claim Agricultural Property Relief (APR). As many farmers can be “asset rich and cash poor”, APR can allow land and buildings occupied for the purposes of agriculture to be inherited, in most circumstances, tax free.

However there are catches, and specific conditions need to be met. APR can be claimed on land and buildings which are occupied “for the purposes of agriculture”; and either

1) owner-occupied for a minimum of two years, or

2) owned for a minimum of seven years and let out to a third party, whether by tenancy or other agreement.

There are specific rules relating to a farmhouse and its occupation that are beyond the scope of this article, but may be relevant if a farmer has retired but lives in the farmhouse whilst letting the farmland to a third party.

In some cases, Inheritance Tax Business Relief could be claimed where the diversification changes mean that APR cannot be claimed. You cannot claim both, but a farming business may find that Business Relief is available on the value of an asset not fully covered by Agricultural Relief if the conditions are met. It is allowable at 100% or 50% depending on the assets, and the set-up of the business. The Residence Nil Rate band may also relevant and can be taken into account.

As stated, the message is – Plan ahead! Failure to do so may lead to a greater tax burden and difficulties for the next generation. For further advise on Agricultural Property Relief please contact Rural Law Practice on 015395 67571 or drop in to our office at Junction 36, Crooklands.

Published 26 February 2020

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