Positive signals for farmers in first inheritance tax review

Farms and estates can take some positive signals from the first part of the long-awaited inheritance tax (IHT) review, according to specialist agricultural accountants.

The Office of Tax Simplification (OTS) is undertaking a two-part review of inheritance tax at the request of the chancellor the exchequer.

Its recommendations are eagerly awaited, given the importance of agricultural property relief (APR) and business property relief (BPR) to the agricultural sector, with 100% tax relief on offer for qualifying businesses and assets.

See also: Inheritance tax review could force succession plan changes 

The first report, published on Friday (30 November), largely deals with the complexity of administrative issues associated with IHT.

The key recommendation is that technology should be used to make dealing with the tax on a day-to-day basis much easier.

Key findings of first OTS report

  • A fully integrated digital system should be introduced for IHT.
  • Changes should be made to reduce and simplify the administration of estates.
  • HMRC’s IHT guidance should be reviewed and improved with helpful examples.
  • There should be enhanced communication with executors and improved speed of response from HMRC.
  • Review process that sees trustees having to submit forms where no IHT is due and no reliefs or exemptions are claimed.

Second report

A second report will follow in spring 2019, which may recommend more fundamental changes of IHT and the way reliefs and allowances are implemented.

However, advisers who work on behalf of rural businesses have highlighted that there are some positive pointers for farmers in the initial report.

Sean McCann, chartered financial planner at NFU Mutual, said although it acknowledged that inheritance tax was complex, the reliefs used by farming families were singled out as being simple and straightforward.

“It was good to see a spotlight shone on the taxation of furnished holiday lettings, which are commonly used by farmers to diversify the farm business,” he added.

“In general, these lettings are treated as a trade for income tax and capital gains tax, but aren’t normally eligible for business property relief, meaning they are subject to inheritance tax.

“It’s an anomaly that continues to catch out farming families.”

Simplification?

David Chismon, partner at Saffery Champness, said his reading of the report did not pick up on any appetite for drastic change.

“The report says change should focus on the practical application of these reliefs and it is hoped that simplification will iron out confusion – for example, in relation to furnished holiday lets, certain joint ventures and limited-liability partnerships.

“Hopefully any change will clarify that these businesses do qualify for relief rather than categorically excluding them.”

Sharon Omer-Kaye, head of RSM’s rural services sector group, agreed it was a positive that so far the review stopped short of proposing any major changes.

“However, there is no doubt that the application of these reliefs is complex and often leads to uncertainty, so any simplification should be welcomed.”

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