Inheritance Tax under HMRC spotlight

Many farmers are concerned over the political landscape surrounding Inheritance Tax (IHT) reliefs and the possibility that the current favourable situation may change.

Currently, it is possible for farming assets to qualify for relief from IHT with Agricultural Property Relief (APR) and Business Property Relief (BPR) potentially available at rates of up to 100%. We would point out that it is important to review the availability of these reliefs as complexities can mean that they may not fully apply in every circumstance!

Concerns that there may be changes afoot have been influenced by the fact that the Chancellor tasked the Office of Tax Simplification (OTS) to review Inheritance Tax, last January. The OTS put out a call for evidence in April 2018 which sought to gather responses from the public and professionals and asked for thoughts on areas such as whether 'the criteria for being a farmhouse or the process of determining the agricultural value of the farmhouse be simplified?', whether there are discrepancies in the way APR and BPR operate and 'if it would help if APR was replaced by BPR or if the two were merged?'.

Due to the wide scope of the review, the OTS announced they would produce two reports. The first report looking at the administrative areas was issued in November.

This report did not make any radical recommendations for changes in rules and covered digitalisation and administration. However it did mention that whilst they had received a wide range of comments about APR and BPR, the OTS's focus would be on the practical application and complexity of these reliefs rather than major changes to the reliefs themselves. This has been commented on by many as being good news for farmers.

The report mentioned that the 'evidence gathered so far suggests the reliefs are broadly working in a straightforward way. However, there are some areas where there is confusion, lack of consistency or where the rules do not account for businesses structured in different ways. This includes issues relating to furnished holiday lettings, joint ventures and limited liability partnerships - where changes could well have an Exchequer cost. The OTS has also heard that the need to claim APR before BPR can lead to increased administration.'

The second report which is expected to include recommendations in these areas is due in Spring 2019.

Whatever the outcome of the second report and the recommendations made, it is important that farmers make periodic reviews that the reliefs apply and that the farming business has appropriate succession plans in place. To ensure opportunities are maximised professional advice should be taken regularly to allow appropriate planning to be undertaken. If you would like to discuss further any of the issues covered in this article, please contact Mairi Drummond on (01573) 224391, or Mairi.drummond@renniewelch.co.uk.