Business Clinic: How likely is inheritance tax reform?

Whether it’s a legal, tax, insurance, management or land issue, Farmers Weekly’s experts can help. Here, Nicholas Smith of Duncan & Toplis tackles an inheritance tax issue.

Q. My parents keep avoiding the question of passing the farm on to me. They make comments about me getting it when they die, but I worry about paying taxes on it, or them leaving it to my brother, who has done nothing to help build up our farming enterprise.

Is it likely that inheritance tax rules will change as some people seem to be saying?

A. The question of succession is a tricky one for any family business, but this is especially so in farming as there is often so much value tied up in land and buildings. 

Generally speaking, it is usually better for the individuals who run a business to also own it. 

However, there are other considerations, including the one you have alluded to: how parents might feel about treating their children fairly, if not equally.

See also: Browse the Business Clinic archive here

You don’t mention whether your farm has any diversification aspects which might mean that not all of the business would attract full relief from inheritance tax (IHT) either through agricultural property relief, or business property relief.

Let’s assume it’s all farming and/or trading activities and that your parents are still involved in the business, which would mean that those reliefs should be available in full.

Potential future changes

There can be complications with farmhouses but it is unlikely there will be any IHT to pay when your parents pass away.

That’s the IHT position under the current legislation. What you have probably heard about is that the Office for Tax Simplification has been looking at the operation of IHT for the past 18 months or so and continues to do so. 

Earlier this month, it made some further recommendations and none of them would appear to suggest that the IHT reliefs I referred to should be removed. 

Indeed, there is a recommendation that farmhouses should not be at risk when elderly owners need to go into care or hospital for long spells.

Planning for succession

In summary, IHT is unlikely to be a worry for you, but succession planning is something that all businesses should consider and prepare for. 

It is a tricky subject to broach, and one where independent advice can help. 

If, for example, your parents are no longer involved in the day-to-day decision-making of the business, they might also consider not being involved as owners. 

They can gift assets to you (and your brother) now, with business asset holdover making it possible to avoid a charge to capital gains tax. Ultimately, this should make their estates easier to deal with but it is a difficult conversation to open.

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