Last year, the Office for Budget Responsibility informed us that the number of estates on which Inheritance Tax (‘IHT’) was payable reached a 35-year high. This has been forecasted to continue to rise until the introduction of the ‘Residence Nil Rate Band’ (‘RNRB’) in April this year. The RNRB will eventually present each person an opportunity to receive an extra £175,000, by April 2020, to offset against their estate if they leave a residential property to lineal descendants. As a farmer or business owner, understanding the tax reliefs available to you is important.
For farmers and business owners, agricultural property relief (APR) and business property relief (BPR) are valuable reliefs potentially available. Both of these reliefs can be available at either 50% or 100%. If they apply, IHT payable is reduced by these amounts.
There are nuances in the application of APR and BPR.
Beginning with APR, farm shops and even grazing horses can prevent the application of APR:
BPR is also restricted in its application. BPR applies to business property; for example, land, buildings, machinery or plant used for farming. In deciding whether or not BPR is applicable, HMRC will look at the business activity, which must be predominantly trading. HMRC will look at all activities including the farming operation; houses used for holiday lets; horses; wind turbines; and telecom masts, etc. To obtain relief, the whole operation must be predominantly trading. This involves looking at profitability, turnover, capital employed and employee time for each activity to determine whether or not on balance the business is one of a trading nature.
The availability of APR and BPR is crucial to the survival of any business. The rules surrounding the reliefs are technical and need careful consideration. An APR/BPR “audit” of your farm could help you in understanding whether or not relief would be available to you and what you need to do to maximise your reliefs going forward.
For further information or advice, please contact Alison Hall, Partner at Hay & Kilner
Call: 0191 232 8345