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Are you making any New Year’s Resolutions?

09 Jan 2017

How about trying to reduce your potential Inheritance Tax bill?

The start of a New Year should be a prompt to us all to review things and to “start as we mean to go on”. Good news is forecasted this year with a projected 15% rise in farm profitability, and with predictions that the UK economy will grow this year much faster than previously expected.

The New Year is often a time when clients come to see us with a view to getting their affairs in order to enable their enjoyment of the months to follow. Advice is frequently sought regarding lifetime tax planning, Lasting Powers of Attorney and planning for when the time comes that people are no longer here through Wills and Inheritance Tax planning including planning to maximise reliefs such as Agricultural Property Relief (APR) and Business Property Relief. Planning for the future can ease the years to follow for your family.

In order to organise things this year, you need to be mindful of some new tax changes which will be taking effect/be effective in the tax year 2016/17. Protecting the family home (or any other property you own) is key when considering the impact of the introduction of the ‘Residence Nil Rate Band’ (RNRB) in April this year.

The gradual introduction of the RNRB will present everyone with the opportunity to potentially receive an extra £100,000 from April 2017 (up to £175,000 by April 2020) to offset against their estate should they leave a residential property to their ‘lineal descendants’. The Government’s motivation to introduce the RNRB was to enable married couples and those in civil partnerships to have the opportunity to leave a combined estate up to £1 million which could pass Inheritance Tax ‘free’ (after the second death) to their children. Of course, with all new tax rules, things are not straightforward and there are technical conditions which apply to the RNRB which you should seek advice on.

There are special and separate rules for farmhouses where APR may apply at 100% meaning there is effectively no Inheritance Tax to pay on it. However, APR may not always apply. For a farmhouse to receive APR, it must be functional and ancillary to the use of the agricultural land (so it must not take up all of the land). Also, the person living in the farmhouse must be the person who organises the daily running of the farm. However, problems can arise if, for example, no one is living in the property and therefore the house does not satisfy the test of being ‘occupied’ for the purpose of agriculture. If this was the case, APR may not apply.

The availability of APR is a “technical minefield”, and, as most cases are scrutinised by HM Revenue & Customs, while the relief can be generous, there are numerous hurdles to cross to secure the relief. Planning in lifetime is crucial to ensure your affairs are in order to capture this relief on death.

Ultimately, any farm/property owner should seek advice about the application of the RNRB and APR so as to provide as much protection as possible in relation to the bricks and mortar passing to lineal descendants. Why not make your New Year’s Resolution in 2017 one of getting your affairs in order to give you and your family peace of mind.

For further information, please contact Alison Hall, Partner at Hay & Kilner

Call: 0191 232 8345

Email: Alison.Hall@hay-kilner.co.uk