Check Inheritance Tax relief
Like many farmers, our partnership has scaled down farming in favour of diversification. My father, the senior partner in the business, is the owner of the land and we’ve always assumed that we will get full Inheritance Tax relief on the farm. I’ve heard that this might not be the case – is this right?
Ben Allman, partner at agricultural specialist accountants Ballard Dale Syree Watson replies: This issue highlights a growing problem in farming. Too many are assuming that they will always have full Inheritance Tax on the death of the landowner and not enough have specialist accountants and solicitors to protect them.
This is obviously a broad area and every farm is different but there are a few points I can suggest.
Providing the conditions are met Agricultural Property Relief (APR) gives 100 per cent Inheritance Tax relief on the agricultural value of the land only. If there is any non-agricultural use of the farm property, for example, residential/commercial lets or a separate trade, then this is unlikely to be covered by APR.
Business Property Relief (BPR) can be available to cover the property used for non-business activities providing the farm can be seen as a business as a whole. Too many non-trading investments and BPR can be lost across the entire farm. Farming families have been increasingly reliant on BPR as diversification and other income streams have increased.
BPR is available at 100 per cent on partnership assets, however it only gives 50 per cent relief where the asset is only held personally and used in the trade. Therefore where BPR is needed to cover non-agricultural use of the land, it is extremely important that the accounts and the partnership agreement include the farm as a partnership asset.
BPR also would cover land where there is potential for development. APR is on the value of the land if it were used for agricultural use only so if there is a much higher market value due to development potential, BPR is crucial. This can mean that a farmer who does nothing but the farming trade now needs BPR.
The points above are general - there are other conditions that need to be met to successfully claim APR and BPR. The danger is where farmers do not have farming specialists as their accountants and solicitors – often these large tax problems aren’t spotted until it is too late.
Contact Ben at ben.allman@ballardsca.com or on 01905 794504.
