Beware tax on traditional farm buildings, says Old Mill
Farmers risk losing valuable tax allowances on traditional farm buildings, according to rural accountant Old Mill.
Although many traditional buildings are an integral part of the farmstead, a number have fallen into disuse due to inability to house modern farm machinery or livestock. HM Revenue & Customs has started to hone in on this area, questioning whether such buildings should qualify for Agricultural Property Relief from Inheritance Tax.
“This is a serious and worrying trend, potentially rendering many thousands of farmsteads liable to a heavy tax burden,” says Mike Butler, partner at Old Mill Rural Services. “Buildings which HMRC perceives as not being in true agricultural use no longer qualify for 100% tax relief, which could give rise to a large tax bill.”
The key question is whether the buildings were occupied by farming in the two years prior to the owner’s death, says Mr Butler. “If they were either unoccupied, or merely used to store sundry bits and bobs, there is very little argument to defend an Agricultural Property Relief claim.”
Importantly, many traditional farm buildings carry an inherently high value, due to the possibility of conversion into residential dwellings or commercial units. They therefore form an extremely valuable part of many deceased farmers’ estates. Although Agricultural Property Relief only covers the agricultural value of the building, any excess can be covered by Business Property Relief, as long as the building is used in the farmer’s own business.
To avoid being saddled with a large Inheritance Tax bill, farmers should ensure the buildings are in constant agricultural use, and retain proof of this. “Keep photographic evidence of how the buildings are used; ensure they are noted on insurance documents as being used as part of the farming business; and where they are used to store chemicals or fertiliser, make sure the appropriate certification is given for that building,” says Mr Butler.
Maintaining or renovating old farm buildings is also a useful tip. “Well maintained buildings provide persuasive evidence that you want to keep them in serviceable agricultural use. By showing the repairs through the farm accounts, you clearly demonstrate that the building is still important to the farming operation. Doing so does not only provide full tax relief on any work done, it could secure 100% Agricultural and Business Property Relief in the future – a valuable saving for any farming business.”