Inheritance Tax on Land?
Much has been written about the risk to Inheritance Tax Relief on farmhouses following the latest McKenna case and linking the now well known facts of Antrobus. This must surely be just the tip of the iceberg and with the Exchequer in search of revenue, avoiding Inheritance Tax must no longer be taken for granted.
With regard to farm houses, only the most genuine farming cases can carry any degree of certainty and for those employing contract farmers, even the most robust contract farming arrangement is likely to come under extreme scrutiny if a case finds itself before a tribunal of court. Land Agents in particular must prepare for this eventuality and advise accordingly. Land owners and farmers must be willing to accept the risk. Certainly any one acquiring land with a view to sheltering Inheritance Tax must proceed with extreme caution and only accept this relief as a result of well chosen tax planning and indeed then, only as a bonus.
Even the most genuine working farmer can expect I should anticipate up to 30% of the value of their working farm house to be taxed to Inheritance Tax following the implementation of the Antrobus II decision. The key point is that Agricultural Property Relief, the IHT relief generally available to agricultural assets only extends to the agricultural value of that asset. Agricultural value is broadly defined as the value of an asset as if it could only be used for farming purposes and carries such a onerous restricted covenant. In the Antrobus II decision, the excess value of the farm house over and above its’ agricultural value amounted to 30% and the estate was taxed on this surplus.
Perhaps more interestingly, is the potential application of the Antrobus II decision to farm land itself. With the comment coming from many farmers that they cannot afford to buy land now because of the amenity premium, it must be a risk for those acquiring land at such a premium that valuation of farm land on death may well contain a significant premium over and above its’ agricultural value. As such, this excess will not be covered by Agricultural Property Relief and therefore potentially subject to Inheritance Tax.
The more that it is written about high land value and the more land is marketed and sold for its’ amenity value rather than its’ agricultural value, the greater the risk that the Capital Tax Office will begin to identify this as an area for rich pickings.
Don’t be fooled if you think H M Revenue & Customs will show leniency in these matters. Recent Inheritance Tax cases and indeed the Revenue’s approach to VAT and in particular shooting, is a clear demonstration that duty recovery is their primary aim and that this will be achieved by whatever means are available to the tax authorities. The days of doing nothing and hoping things will be ok are long gone and perhaps now, more than ever is a time when we can truly say Inheritance Tax is payable by the ill advised. We strongly advise all farming families to seek advice and protect your valuable family farming assets.
Ends.