Inheritance Tax Planning For Farmers

09 March 2016

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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