HM Revenue and Customs (‘the Revenue’) last year commissioned a report into the public’s understanding of Inheritance Tax and the reliefs available to reduce tax payable.
The research was arguably very limited, engaging with only 80 people!
The aim of the research was to gain insight into peoples’ understanding of Agricultural Property Relief (‘APR’) and Business Property Relief (’BPR’) and how the reliefs are used in succession planning.
By way of a reminder, in general terms APR is available on the agricultural value of assets used for agricultural purposes, such as farmland and buildings. BPR is available for certain types of business assets used in a trading business.
Depending on how the assets are owned, APR and BPR can apply at the rate of 100% or 50%, therefore greatly reducing the Inheritance Tax which may otherwise be payable on the death of the asset owner.
The results of the research highlighted a lack of understanding of the effect of APR and BPR..
Since issuing the research, the Chancellor of the Exchequer has instructed the Office of Tax Simplification (“OTS”) to review Inheritance Tax, and, at the time of writing, the OTS has set out the scope of the review.
Of interest is the OTS’s suggestion that they are to review the “complexities arising from the [Inheritance Tax] reliefs.” Whilst simplification of the rules would be welcomed, there is concern that this may be a ‘wolf in sheep’s clothing’ resulting in a restriction on the availability of APR and BPR.
It is difficult to predict the outcome of the review but any restriction of APR and BPR is concerning because of the often high value of agricultural and business assets, and the possible level of Inheritance Tax payable if such assets do not qualify for relief.
So, what does this mean for farmers, farming families and landowners?
The results of the Revenue’s research are worrying, because without a full understanding of the reliefs currently available to agricultural and business assets, it can be very easy to miss opportunities to plan during lifetime to ensure APR and/or BPR are available on death at the highest rate possible.
Such opportunities for planning can arise in relation to how the farm business is structured, the documentation in place to record business arrangements in effect on a day to day basis, how new people (often family members) are brought into the farming business and how retirement and exit strategies from the farming business can be enacted.
Any changes to the rules could result in new opportunities for succession planning, but similarly it could lead to a loss of relief. Obtaining bespoke advice tailored to your individual needs can ensure that you maximise available reliefs to minimise Inheritance Tax.
At Hay & Kilner, our specialist advisers in our Rural Team have extensive experience in advising land and farm business owners about the complexities of Inheritance Tax, APR and BPR to ensure all reliefs and exemptions available on death are captured as much as possible.