F or many farming families it is likely that a claim for Inheritance Tax reliefs has previously been made since it was introduced in 1984. But in recent years many farming businesses have diversified into activities that complement the arable or livestock business. This diversification has often been carried out over a period of time without regard to the cumulative impact on the Inheritance Tax reliefs available, and whether the business remains a trading business or an investment business. Consider the example of an arable farm that was passed down to the current generation in perhaps the 1990s or early 2000s. The components of the farm business will now look very different, possibly incorporating let properties (cottages or commercial buildings), energy generation (solar panels or wind turbines), the provision of storage facilities or other activities associated with the land including the provision of camping facilities and events like festivals or weddings. The Inheritance Tax legislation has changed little since it was introduced in 1984 and Agricultural Property Relief and Business Property Relief remain very valuable protections against Inheritance Tax when assets are passed onto the next generation, either in lifetime or on death. In contrast there have been numerous tax cases regarding the interpretation of this legislation, and the more diverse the non-agricultural activities are (particularly if they are non-trading) the greater the exposure to the loss of some or all of these reliefs becomes. The structure of the farming business, whether that be as a Sole Trader, a Partnership or a Company will determine both the Reliefs available and the rate of Relief. How the business is managed can also be critical to the success of an Inheritance Tax Relief claim. This was demonstrated in the 2010 Earl of Balfour case where a substantial number of cottages that were let on short-term leases qualified for Business Property Relief, due to the way in which the business was conducted.
This tax case is now over 10 years old and the precedents that were set out in that case have been accepted by HMRC, despite them being able to change the relevant tax legislation should they have wished to do so. The business structures used by most (but not all) farming families, mean that it is normal for the Agricultural Value to be protected from Inheritance Tax by Agricultural Property Relief, but in order to protect other assets, that often form a substantial value part of the Estate, it is necessary to rely on the principles set out in the Earl of Balfour case in order to claim Business Property Relief. With agricultural values stagnating, and in some cases reducing from where they were a few years ago, and the values of other assets increasing, it is becoming ever more important to ensure that Business Property Relief is not compromised by any number of factors outside of the control of the farmer. There are strategies in lifetime that farming families can adopt to protect themselves from these risks, particularly where a claim is to be made on death. This could include the structure of the business and how the Will is written (particularly on first death). It is therefore vitally important that farming families assess the risks to the loss of Inheritance Tax Reliefs and work alongside both their Tax Advisers and Solicitors to ensure that the maximum protections are put in place to ensure that these risks are managed, and a plan is agreed to ensure that when they are tested there is a robust strategy to weather any storm that might be created by HMRC. Graham Doubtfire specialises in looking after Private Clients and their families and has acted for farming businesses for more than 25 years, during which time he has supported the transition of assets between one generation and the next and assisted many farming families to understand the tax consequences that could arise. Despite the risks of a challenge to claims to Inheritance Tax Reliefs, the current tax legislation (Income Tax, Capital Gains Tax and Inheritance Tax) is broadly supportive of farming businesses and now is therefore a good time to undertake a thorough assessment. Any future changes, should they arise, are likely to make planning for the farming family more challenging.
AGRICULTURE AND FARMING | SCRUTTON BLAND | 1 3
Made with FlippingBook Learn more on our blog