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.

Main Residence Nil Rate Band (RNRB)

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The introduction of the Main Residence Nil Rate Band (RNRB) may have a substantial impact on Inheritance Tax Planning and how farmers pass on their assets, possibly tax-free.

The new allowance is due to be introduce by April 2017 at an initial threshold of £100,000 which will rise to £175,000 by April 2020. This threshold is per individual and it will also be possible to transfer the allowance between married couples and civil partners.

The RNRB is in addition to the existing Nil Rate Band of £325,000 which is the current allowance available on the estate of each individual, the main difference being that the RNRB is tied in to residential property.

The RNRB allows complete relief from Inheritance Tax up to the threshold on a house lived in by the deceased at any time, provided that the house is given to a direct descendant such as a child, grandchild etc. or a spouse,  and that the net value of the estate at the date of death is £2m or lower.

With timely Inheritance Tax Planning, this new band could offer more flexible relief for those wishing to take a step back from active farming and where other avenues of tax relief, such as Agricultural Property Relief and Business Property Relief, have more restrictions or may not apply.

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

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Inheritance Tax Planning For Farmers

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As every farmer knows agricultural property attracts agricultural property relief (APR) which means that agricultural property can be gifted free of IHT – or does it?

There are situations where HMRC have successfully challenged the claim for APR. The rules are complex and each case has to be looked at on an individual basis. There are two areas in particular where some or all the relief is being inadvertently lost

  1. The Farmhouse

The main points to consider when trying to secure APR on the farmhouse is that it has to be of a character appropriate for a farmhouse. Problems occur when a farmer who owns a large farm with a farmhouse in the middle gifts, on retirement, the majority of the land away but retains a small proportion of the land and the farmhouse. This usually means that the farmhouse is no longer of a character suitable to the land retained.

Often on retirement the land is let on a Farm Business Tenancy with the farmer retaining the farmhouse. This will result in the loss of APR on the farmhouse. Any farmer contemplating retirement and/or gifting land should seek professional advice before taking any action to ensure this valuable relief is not lost.

  1. Ownership of the land

The land held in most family farm is owned between different family members. Some may be owned via a family company. It is very easy to fall foul of the rules and end up with only 50% APR where land is owned by one person but farmed by another entity such as the company. If the person making the gift does not have control of the company when making the gift APR will be reduced to 50%. There can also be problems if a farmer leaves a spouse who lives in the house but is not part of the business.

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.

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Big Changes In Estate Planning

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The introduction of the Main Residence Nil Rate Band (MRNRB) has significantly changed Inheritance Tax Planning for Land and Business Owners.

If your assets are worth more than £2m (including Land and Business assets) then your Estate could lose the benefit of up to £350,000 in MRNRB. This could increase Inheritance Tax by up to £140,000.

In many cases there is now a strong tax argument for making lifetime gifts of some Land and Business Property. In order to decide we prepare Inheritance Tax Reports for clients to identify their objectives and the most tax efficient way of achieving them.

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

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The Success In Succession

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Farmers Weekly and the NFU have joined forces to raise awareness of the importance of succession planning for farmers.

Their joint campaign has hit social media bolstered by its very own hashtag: #elephantonthefarm, with both parties acknowledging the difficulty many face in approaching the issue and yet the importance of planning ahead.

For many farmers the plan is certain – pass the farm on to the next generation. However, this is not without its complexities, as disagreements among family members can arise. For those who do not have a successor in mind there is negotiation of the potentially unknown – tenancies, share farming and joint ventures.

And then there’s the real fun stuff… inheritance tax, particularly the intricacies involved in preserving inheritance tax allowances when the farmer is not the one farming the land.

The elephant may well be on the farm but it can often be the case that the ostrich is in the farmhouse, burying his or her head quite firmly in the sand.  Perhaps it’s better, in the case of succession planning, to take the bull by the horns?

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

Budget Brings Big Changes to Farming Businesses

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The recently announced National Living Wage of £7.20 per hour is expected to hit farming businesses hard. The launch of the new wage, which is replacing the National Minimum Wage, was announced in the Chancellor’s budget and represents a jump of 11% from the current £6.50 an hour. The amount is set to rise to £9 per hour by 2020 for employees aged over 24.

For many companies, a reduction in corporation tax will help to offset the rise, but this applies to fewer than 10% of farming businesses. Henry Robinson, president of CLA which represents many rural landowners, said “As a result of this budget, farmers and other rural businesses are presented with significant inflation in wage costs and the cut in corporation tax that is supposed to pay for it will not benefit them… There are hundreds of thousands of family businesses in rural England and Wales that are unincorporated and therefore are taxed on higher tax rates.”

However, the new Inheritance Tax Relief rules look to benefit many farming families, as the Chancellor announced the creation of a £175,000 family home allowance for each individual. While many farming properties qualify for agricultural property relief from inheritance tax, claims are very closely scrutinised by HMRC and the new allowance will help some farming families. The new allowance is transferable between spouses and there will be an ability to also take advantage of the new allowance even if you downsize.

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

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Succession Planning for Farming Businesses

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A recent survey by Farmers Weekly and NFU Mutual found that more than 60% of UK farming families do not have a succession plan. The reasons for this include lack of communication, a desire to avoid family conflict, the owner’s reluctance to retire and the fact that the business can only support one successor.

In our experience it is very important to address this problem and communicate with all parties involved. An Inheritance Tax Review is a good starting point for this process. This establishes exactly what assets are owned, who owns them and what they are worth. Based on this information it is possible to decide the best way to pass assets on to the next generation taking into account the tax, legal and personal implications. This can save substantial tax liabilities but more importantly avoid potential conflict within the family.

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

Inheritance Tax and Agricultural Property

ID-10071245Inheritance Tax is the tax due on the value of an individual’s estate when they die. The Inheritance Tax threshold for the current tax year is £325,000, so in the event of death, an estate worth more than £325,000 will incur a tax charge of 40% (or 36% if 10% or more of the estate is gifted to charity). The estate includes property, money and possessions.

You can however give agricultural property free of Inheritance Tax, either during your lifetime or as part of your will, if you qualify for Agricultural Property Relief (APR). In order to qualify for APR, two key conditions must be satisfied: the property must be relevant agricultural property, and it must have been held for a minimum period of ownership. The minimum period of ownership is different depending on whether the owner occupied the land or whether it was tenanted.

APR can be claimed up to a rate of 100% and it is given on the agricultural value of the property, not the commercial value. It is possible that the commercial value of the land and business will be higher than the agricultural value, but if all qualifying conditions are met, then Business Property Relief can be claimed on the difference between the market value and the agricultural value, thereby allowing full relief.

It is always worth reviewing your Inheritance Tax position with your tax advisors. Please contact Green & Co for more information.

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

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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.