If you are a farmer owning land this will usually make up a significant part of your estate. We regularly address concerns raised by clients either when planning their estates during their lifetimes or from executors during Estate Administration about the impacts of Inheritance Tax (IHT).
The basic allowances for inheritance tax see unmarried individuals with children enjoy up to £500,000 free from tax (though this does depend on the individual circumstances, and it should not be assumed that this is always the case). When considering the value of farms and land, even a small arable farm of a little over 100 acres, the land alone will likely be worth in excess of £1m.
You may have heard of Agricultural Property Relief (APR). APR is a relief from IHT, whereby if the conditions are met, it reduces the amount of the estate on which IHT is charged. The reduction is based on the agricultural value of the land, not the open market value, which means you cannot use any potential development value (worth significantly more) to include within any relief claim.
It is also possible for farm buildings and houses that are part of the farm to qualify for APR. This, however, must be approached with caution. There are no definitive criteria for farmhouses and barns to qualify for APR and this has on a number of occasions been disputed by HMRC. It is usually looked at on an individual basis. Is it genuinely a working home of the farm or is it a stand-alone country residence? Is the whole value of the farmhouse the agricultural value on which relief can be claimed or is a portion of it worth in excess of the agricultural value?
Guidance on this is found within a handful of significant cases where HMRC and the executors have turned to the Courts or Tribunals to settle disputes. These cases have laid down the starting point for an application for APR on farmhouses and buildings, however, they are by no means conclusive. These are some of the many risks that Executors acting without legal advice would need to tackle.
With farms often having limited working capital, the benefits of such a relief allows farming businesses to carry on without either selling assets or breaking up the farm to release funds, or end farming activities altogether.
It is important to instruct a solicitor that has experience of navigating the requirements for APR to ensure the best possible outcome.
(Figures correct as of August 2023)
Please do not hesitate to get in touch if you require our assistance. We have an excellent private client department, across all our three offices, who are here to help you to ensure your wishes are protected and your estate is in order.
For further information, or to arrange an appointment to discuss your Will, please do not hesitate to get in touch with us. Our Ripon office can be contacted on 01765 601717, our Thirsk office can be contacted on 01845 522324 or our Bedale office on 01677 422422.
Author: Sam Thorogood
