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Branching out into the New Year: Are you up to date with potential reliefs?

15 Jan 2018

The Government has laid out its 25 year environmental plan. Many aspects of the plan might impact farmers including potential rules about the use of water and the efficient use of fertiliser. However, an opportunity does present itself in the new “Northern Forest Scheme” – a scheme to plant a belt of trees across the county. Landowners and farmers may be incentivised to plant trees in order to meet the target of planting 11 million in the 25 year period. The Government has pledged 5.7 million to kick start the cause which is said to have an economic benefit (due to the commercial value of timber) together with a benefit to local wildlife and to reducing the risk of flooding. So will you be branching out in the New Year?

As mentioned in my previous articles, diversifying your land can often be a sensible way to protect your business against changes to the market place. But with diversification farmers in particular should consider how this might affect the various incentives and reliefs already available to them. In my line of work, this often means how diversification may affect the Inheritance Tax Reliefs available.

The main reliefs available to farmers are Agricultural Property Relief (“APR”) and Business Property Relief (“BPR”). Both of which serve to reduce Inheritance Tax by up to 100% providing certain conditions are met. APR is available if at the time of your death, you have owned and occupied your land for 2 years or more and it is used for agricultural purposes. If you are not occupying your land at the time of your death – for instance if it is let to a different farmer – APR may be available providing you have owned the land for the 7 years prior to your death and it is used for agricultural purposes. APR will not be available on woodland unless the wood is merely ancillary to the farm. This would include a shelterbelt or small areas of woodland used for your own enjoyment. Woodland used commercially is more likely to attract BPR. To qualify for BPR you have to have owned the woodland for the 2 years prior to your death and used it for business purposes, such as in the production of timber.

Alison Hall web profile 2016

APR and BPR are by far the most favourable Inheritance Tax reliefs available to farmers. However, there is also a little known Inheritance Tax relief relating specifically to woodland and this is unsurprisingly known as “Woodland Relief”. Whilst it is a last resort (used only when APR and BPR are not available) Woodland Relief defers any Inheritance Tax on the value of the trees (not the land) until they are sold or given away. In order to qualify for the Relief, you must have owned the land for at least 5 years at the time of your death. If you inherited the land or received it as a gift there is no minimum ownership period. Deferring the payment of Inheritance Tax can be useful to a business as it presents an opportunity for further financial and Inheritance Tax planning to be considered.

We are yet to find out the structure of any incentives which may be offered to farmers and landowners to plant trees over the coming years. Until we have further information, we cannot be sure how planting woodland may affect the Inheritance Tax reliefs available. For the time being, APR and BPR remain the preferred reliefs for any farmer. The potential benefit of those reliefs needs to be balanced with the opportunities presented to your business now. Whatever enterprise you do undertake in 2018, some forward planning will be of use when it comes to diversifying your land and passing your business to the next generation.

If you would like further information about any of the above, please contact Alison Hall on 0191 232 8345 / Email: alison.hall@hay-kilner.co.uk