By Robert Black, Bsc (Hons) FCCA, CTA, Landed Estates and Agricultural Specialist.
The agricultural industry has many opportunities for an individual to benefit from Inheritance Tax (IHT) reliefs, as a result this has many individuals believing they will not have an inheritance tax liability. In many instances farmers will be covered by Agricultural Property Relief (APR) and Business Property Relief (BPR), however, certain business structures can limit these reliefs. With the increased demand for rural housing, the farmhouse has become a valuable asset. It is often assumed that the farmhouse will be covered by 100% APR but in many situations, APR only covers a proportion of its value. A farmhouse located in a position with appeal to the wider public could potentially have an agricultural value equal to that of only 70% or less of the overall market value. This could lead to a significant proportion of the property being subject to IHT. In addition to the farmhouse being subject to inheritance tax, land and property held outside the balance sheet will only benefit from BPR at 50%. Whilst the majority of land held may only have an agricultural value, areas surrounding neighbouring towns and villages could have significant hope value, as could agricultural buildings prime for development. This additional value could be exposed to IHT and could create an unexpected liability. Appropriate documentation is required to change the ownership structure to bring property onto the balance sheet. Alongside this a robust partnership agreement is required and the detail of this should be appropriately shown in the year end accounts as further evidence.
The number of HMRC investigations have risen in recent years and business structures and valuations are coming under greater scrutiny. It is vital that asset ownership structures are reviewed and appropriately addressed to maximise reliefs before they become an issue.
If you have any questions around IHT planning, please get in touch.