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Inheritance Tax reliefs for farm and business owners

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Dumfries and Galloway is known for its glorious countryside, rolling hills and friendly towns.  With agricultural farmland in abundance and farming a major source of employment throughout the region, farmers and other business owners should be aware of the potential reliefs from Inheritance Tax available to minimise the impact of IHT on your estate.

Agricultural Property Relief (APR) is available to those who are using their land or buildings for agricultural purposes, and can often be claimed alongside Business Property Relief (BPR).  APR and BPR have the effect of reducing the value of an asset by either 50% or 100%, often resulting in huge IHT savings.

Provided certain conditions are met, the following qualify for APR: agricultural land or pasture, woodland, farm buildings, farm cottages, and farm houses.

What are the conditions?

The property must have been used for agricultural purposes – either by you for two years prior to your death, or for seven years prior to your death if occupied by someone else, and you must not have entered into a contract to sell the property.

HMRC do not consider land cultivated for horticulture, forestry or used for horse grazing to fall within the category of “agricultural purposes”.  HMRC scrutinise applications for APR and BPR very carefully, and therefore it is important to carefully consider these matters during your lifetime and plan ahead.

Farmhouses qualify for APR provided they meet further conditions.  Is the house occupied by the person who is involved in farming on a day to day basis? Is it proportionate to the size and nature of the farming activities?  Does it look like a farmhouse?  Houses with “a bit of land” do not tend to qualify, and a significant proportion of the farmhouse’s value will be non-agricultural as it is also used as a home.

A crucial point to note is that if the farmhouse forms part of the farming partnership, 100% relief is potentially available.  If, however, the farmhouse is owned by the farmer and used by the partnership for farming purposes, the relief available is reduced to 50%.  It’s therefore essential to review your partnership agreement to check it is not adversely affecting the IHT reliefs that could be available.

The rules relating to IHT reliefs are not straightforward, however with careful planning there are huge savings to be made – and you may even be able to leave your agricultural and business assets to your chosen beneficiaries tax-free.

If you’re ready to start planning, or looking for some further information and advice, please contact Rod Styles (rod.styles@walker-sharpe.co.uk).

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