Inheritance Tax Reliefs: Straws in the wind

Agricultural property relief (APR) and business property relief (BPR) from inheritance tax are key reliefs for farmers and landowners. In many cases they allow most of the value of a farm to be passed on to the next generation without a tax bill. If tax were charged on farms on death, many farming families would face the risk of sale of the farm (or a significant part of it) or a big question mark over the future viability of the business. Structuring the ownership of the farming business to give the best chance of obtaining APR and BPR is a key piece of tax planning for farmers and landowners. Any sign that these reliefs may change has to be viewed with concern.

HMRC recently announced that they wish to interview tax advisors who advise on APR and BPR. HMRC say they want “to better understand if the availability of these reliefs and exemptions influences the behaviours and motivations of testators in acquiring assets before death, and of beneficiaries who inherit these assets”. A tax advisor with an overactive imagination will immediately conclude that the reliefs are under review and changes could be on their way.

Does the availability of the reliefs influence the behaviour of tax payers? Yes (as I am sure HMRC already know). The most obvious effect of the current rules is for farmers to retain ownership of their farms and to continue to trade as farmers (often through a partnership with their children) until they die. This is the simplest way to secure the exemptions under APR and BPR. It is not necessarily a good thing commercially for the older generation to have to stay in business until they die. Rather more careful planning is required for farmers to be able to pass on their farms in their lifetime to their children, while still retaining adequate income in retirement.

If the reliefs are under review farmers need good warning of any changes: many years of careful tax and financial planning will need to be reviewed if there is a major change in the rules.

This article was originally featured in the East Anglian Daily Times, 3rd December 2016.

James Skellorn is Senior Partner and Head of the Private Client team at Barker Gotelee, Suffolk solicitors

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