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Craig Tolliday, associate director with Baldwins, addresses questions concerning the mental capacity of a farming partner and whether BPR relief may be available.
Q. Is business property relief (BPR) from inheritance tax (IHT) available on the assets of a farming partnership on the death of a partner who lacked mental capacity at death, so was not actively involved in the business?
The business was carried on by the remaining partners, who also held a lasting power of attorney (LPA) for the partner lacking capacity.
An LPA can be a particularly useful tool to have in place. In the above scenario, assuming that the LPA had become active due to the mental capacity of the partner, those appointed under the LPA in essence “stand in the shoes” of the partner.
The actions and steps taken by those appointed can therefore have a significant effect on the IHT position of the individual concerned.
From a BPR perspective, assuming that those appointed are all involved in the management decisions of the farming partnership, this should ensure the partner lacking capacity is effectively still trading at the time of death, which should assist with any BPR claim on the partnership assets.
Similarly, if the partner lacking capacity occupied the farmhouse, if those appointed under the LPA continue to occupy, or take up occupation of, the farmhouse in order to care for the partner, this could assist with any agricultural property relief (APR) claim on the farmhouse.
Given the above, it can be extremely important to ensure that great care is taken in drafting any LPA and that the wishes or instructions of the individual are made clear, as any failure to act upon these could have a significant effect on IHT.
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