Taxpayer Victory: Tribunal Grants Inheritance Tax Relief to Livery

Business Property Relief

Business Property Relief (BPR) can exempt assets from Inheritance Tax (IHT) on the basis that they were used in a genuine business, assuming all other qualifying criteria is met. It is not available where the business activity is wholly or predominantly holding investments.

In The Estate of Maureen W Vigne (deceased) v HMRC [2017], HMRC denied the BPR claim entered by the deceased’s representatives on the basis that her livery involved only the letting of land for the use of others, and the extent of the other services offered did not constitute a business.

The first tier tribunal, however, countered that the extra services demonstrated that the business was a genuine livery business and it clearly went beyond simply holding investments. They allowed the BPR claim.

The representatives had also claimed agricultural property relief (APR) on the basis that the asset constituted ‘agricultural property’.  However, the tribunal held HMRC’s view that it did not. Equine activities are not usually characterised as agricultural.

Green & Co undertake inheritance tax reviews which consider an Estate’s exposure to IHT and planning opportunities. If you’d like any further information please contact us on 01633 871122.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Your Redundant Farm Building could be Restricting your Inheritance Tax Relief

Your Redundant Farm Building could be Restricting your Inheritance Tax Relief.jpg

Agricultural Property Relief (APR), if obtained, allows an individual to pass on agricultural property, either in their Will or during their lifetime, free of Inheritance Tax (IHT).

Business Property Relief (BPR) reduces the IHT payable on a wider class of qualifying business assets when they are left in a Will or passed on during lifetime.

In order to qualify for APR farm buildings must be occupied for the purposes of agriculture – derelict buildings will not qualify for the relief. Similarly, if the property has not been used wholly or mainly for business purposes in the two years prior to the transfer, BPR will not be secured.

It’s important for all Farmers to consider their exposure to IHT and if farm diversification is currently being pursued, i.e. alternative uses of agricultural land and buildings, then it’s wise to act sooner rather than later.

If you would like further advice on Inheritance Tax please contact Green & Co on 01633 871122.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Estate Planning and Farmland

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Most land owners are aware of Agricultural Property Relief (APR) and could be forgiven for thinking that this means there is no risk of their Estate paying Inheritance Tax.

Unfortunately there are situations where farmland does not qualify for 100% APR. There have been cases where the HM Revenue & Customs have successfully challenged claims for APR and the rules are complicated.

Family farms often have the ownership spread across the family and in some cases are owned by the family company. Where land is occupied by one person but farmed by another entity, such as a company, it is easy to end up with only 50% APR. There can also be problems if the farmer leaves a spouse who lives in the house but is not part of the farming business.

It is very important to make sure that property ownership is structured correctly to minimise tax liabilities.

For further information contact Green & Co.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Estate Planning and Farmhouses

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Most land owners are aware of Agricultural Property Relief (APR) and could be forgiven for thinking that this means there is no risk of their Estate paying Inheritance Tax.

Unfortunately there have been cases where the HM Revenue & Customs have successfully challenged claims for APR and the rules are complicated. This is particularly true for Farmhouses.

In order for the farmhouse to qualify for APR it has to be of a character appropriate to the farm. The farm-house must be occupied for the purposes of agriculture and preferably by the farmer of the land. APR on a farm-house may be lost if the farm-house is retained on retirement but the land is let on a Farm Business Tenancy. The farmer must continue to be actively involved in the farming business.

Problems can occur when a farmer owns a large farm with a house and on retirement gives the majority of the land away but retains the “farmhouse” and a small proportion of the land. This can mean that the farm-house is no longer character appropriate to the land retained. HM Revenue & Customs are using these arguments to curb “non-farmers” who buy “lifestyle farms” and contract out farming activities or farms where there is not a full-time farmer residing in the farm house.

It is worth noting that APR is only given on the agricultural value of the house. That is the value assuming the property could only be used for agriculture. This means that often between 15% and 30% of the value will not attract relief. The more integral the farmhouse is with the yard and other farm buildings the lower the discount will be.

For further information contact Green & Co.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

When Is A Farmer Not A Farmer?

When Is A Farmer Not A Farmer?

The decline in farming incomes has encouraged many rural businesses to diversify in order to maintain their lifestyle or even to keep their business solvent. Many farmers have found they can make good use of land and property and have turned otherwise idle assets into a reliable source of income. Many land owners have had the opportunity to use land for renewable energy production such as solar parks and wind farms as well as the more traditional revenue producing side-lines like bed and breakfast accommodation or caravan storage.

It is obviously good to have more than one string to your bow, particularly in such a volatile industry, but there can be pitfalls and farmers should take care when engaging in trading activities that are outside the scope of what can be termed “agriculture”. The above activities, for instance, do not constitute trading as a farmer, neither do renting out barn conversions or offering pony-trekking facilities.

Agricultural property can be eligible for Agricultural Property Relief (APR) in the event of the sale or transfer of farm property – providing the majority of the property is being used for agricultural purposes. This is particularly important when one considers the farmhouse itself, which HMRC acknowledges can be an integral part of a farming business. However, the more a farmer uses his property to generate income from other activities, the more likely the taxman can argue against granting APR, on the basis that he is no longer primarily a “Farmer”. Consequently, his entitlement to farming reliefs such as APR may be restricted or withdrawn and this could cause considerable financial problems, particularly when it comes to inheritance tax and care home fee planning. In some cases, it could even threaten the continuity of a farming heritage.

The simple answer is that farmers should always seek advice before entering into any activity which might not be defined as husbandry. Green & Co have come to recognize the complexity of this issue and have a wealth of experience in assessing the dangers of any possible change to a famer’s status if he is generating other income from his property. For more information contact us on 01633 871122.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Do You Wish To Secure Valuable Tax Reliefs On Grazing Land?

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With the increase in land prices, grazing agreements have become important for any landowner wishing to ensure that he retains valuable tax reliefs both for capital gains tax and agricultural property relief, including the farmhouse.

To secure these capital gains tax and inheritance tax advantages, the land owner must be able to demonstrate that the grass land is being farmed as opposed to being let. Should the land be classed as let, any income would be taxed as rents and thus regarded as rental income which does not attract any of the above reliefs.

There are measures that a land owner can take to ensure that HMRC would regard his activities as trading. Close attention should be paid to the nature of any grazing agreement and the responsibilities to be undertaken by the landowner as opposed to the Tenant. Failure to get this right could cost the landowner dearly.

Green and Co are ideally placed to help and advise on all farming related matters. Should you require any further information please do give us a call.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Will Your Farm Buildings Still Qualify As Agricultural Property?

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As you may be aware, a new amendment to planning laws in England allows farm buildings to be re-developed into dwellings in certain circumstances, without requiring special planning permission. Good news for farmers, you might think, but beware!

The effect is that farming families could be caught for extra Inheritance Tax on outbuildings that they have no intention of developing unless they can arrange to claim Business Property Relief on any element of market value above Agricultural Property Relief.

This is because HMRC could argue that all agricultural buildings now have development value as planning permission is no longer required. Thus Farmers could face a problem if only APR and not BPR is due.

It is essential that Farmers take advice and review their assets and usage now to safeguard these valuable reliefs.

Should you require any assistance in this area please contact Green & Co, the Tax experts for farming businesses.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Renewable Energy – Making Farming Greener

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Historically, farmers have provided for the population by producing the basic necessities of life such as food and clothing materials.  In modern times, energy is the most precious  and yet essential of commodities, so it seems only natural that the evolution of farming should include the supply of renewable energy.

From  hosting wind farms and solar panels to the installation of  anaerobic digestion systems, farms are the perfect vehicle for continuing the re-invention of the word “green”. With recent poorer harvests and the adverse economic climate, investing in renewable energy projects can make good use of both available land and farming by-products, and can offer a more secure source of income.

Solar panels are an important option but factors such as location, the lie of the land, planning permission, visual impact and possible local objections should be considered. These could all affect the value of the investment and subsequently your return.

There are financial issues and tax implications which need to be considered and advice should always be sought from an Accountant before entering into any agreement. For instance, it is very important that any land used for renewable energy of any kind retains its agricultural status,  otherwise the entitlement to Agricultural Property Relief may be lost when the land is disposed of or bequeathed, and this could raise issues with Inheritance Tax.

The cost of the solar panels will normally qualify for capital allowances and you can get tax relief of up to £500,000 from 1 April 2014.

Any income received will be taxable as business income unless it comes from leased land, in which case it will be taxed as rental income. It’s also important to remember that any energy sold to the National Grid attracts output VAT and must be included in returns and paid over to HMRC in the same way as any other taxable supply (although the Feed-in-Tariff is exempt).

Should you require any further information or advice please do not hesitate to contact Green & Co.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Renewable Energy: Beware The IHT Implications!

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For landowners looking to secure income through renewable energy development, a key decision is whether to go it alone and install and operate the project themselves, or simply to lease the land to a developer. But the two options have very different tax consequences from the perspective of capital taxes. The major concern for most landowners is inheritance tax.

The two main reliefs are agricultural property relief (APR) and business property relief (BPR) and can be either 50% or 100% relief.

APR only gives relief to the agricultural value of the land and so any value accruing due to the renewable energy project will not qualify.

BPR may be available depending on whether the project is considered by HM Revenue and Customs to be an investment as opposed to a trade. Essentially, an in-hand project is likely to be considered a trade and BPR may well be due once the required minimum two year period has been met.

Let land is, however, in most circumstances regarded as an investment and as such would not automatically qualify for BPR.

Clearly, it is important when deciding to secure an income from renewable energy that the correct structure is put in place in order to obtain either full APR or BPR. Professional advice should be sought before entering into any contract. Green & Co would be happy to help in such circumstances. Contact us on 01633 871122.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

“Does Your Farmhouse Pass The Elephant Test?”

Elephant

Probably a question that you wouldn’t normally associate with farmhouses, or indeed, farming, but it is relevant for Inheritance Tax (IHT). Most farmers are not concerned about IHT, believing that their farm will qualify for 100% Agricultural Property Relief (APR) and in many cases the farm is the most valuable asset in their estate.

Unfortunately over the last few years it has become increasingly difficult to get 100% APR on farmhouses. Whilst the law has not changed, it is being interpreted differently. In many cases 30% of the value of the farmhouse does not qualify for APR.

There have been many legal cases testing eligibility for APR including one which indicated that farmhouses should pass the ‘Elephant’ test. The presiding judge believed that you would know an elephant if you saw one and similarly you would recognise a genuine farmhouse.

It has been suggested, by a well-known land agent, that you can tell a lot about a farmhouse if there is an orphan lamb in the Aga. It is a working farmhouse if the lamb is by the oven; it probably is not a working farmhouse if the lamb is in the oven. Fortunately the courts have not yet suggested a ‘Lamb’ test!

The important point to note, which many farmhouse owners are not aware of, is that many farmhouses no longer fully qualify for APR. It is therefore a good time to review your estate planning as often there are ways to significantly reduce the IHT that your estate will suffer.

At Green & Co we provide an Inheritance Tax and Care Home Fee Review Service to help you decide how to organise your estate in the best way possible.