Revisit succession and tax plans before Spring Statement

Inheritance tax (IHT) and succession plans should be reviewed before the chancellor’s Spring Statement, which could bring significant changes.

An Office of Tax Simplification (OTS) review of IHT in 2019 included recommendations primarily aimed at streamlining IHT administration, but may have the secondary effect of reducing some of the favourable reliefs available to farmers, says Catherine Vickery, associate director at Old Mill.

Current IHT legislation gives farmers confidence in many cases that they can pass down agricultural business and property assets to the next generation tax free on death.

See also: How discretionary trusts can help farm succession plans

However, burgeoning government debt as a result of the pandemic means that some of the OTS recommendations may be taken up.

“Under the existing rules, agricultural land and property qualify for agricultural property relief (APR) from IHT at up to 100%,” says Mrs Vickery.

Other land and property assets, such as diversified enterprises, can qualify for up to 100% business property relief (BPR) as part of an overall farming business that is at least 50% trading.

“These reliefs can apply on lifetime transfers as well as on death, where the conditions are met.”

Transfers on death currently also qualify for capital gains tax (CGT) free uplift so that gains are effectively washed out.

However, the OTS recommendation to remove the CGT free uplift on death when IHT relief is also available would mean that the next generation would inherit the farm at an historically low base cost, leading to higher CGT on any future sale.

Proposals to alter the trading test for BPR, aligning it to the CGT trading test that requires 80% of the business to trading, could leave farmers ineligible for 100% BPR.

Are you, like many other farms, missing out on tax claims for R&D?

If you’re a limited company, you could be eligible for tax credits if you’re carrying out R&D on your farm. For more information and to find out if you’re eligible visit our R&D tax credits page.

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