For all estates, a clearly planned Will and strategic business plans can help save Inheritance Tax, as well as avoid family disputes. When estates have a business or agricultural element, planning is crucial to ensure the future of the business and to mitigate tax.
It is estimated that 60% of farmers do not have a plan for their business or estate.
Currently, it is possible for qualifying business assets to be passed on with potentially 100% relief from Inheritance Tax, either through the use of Business Property Relief (BPR) or Agricultural Property Relief (APR) for farming assets.
BPR and APR often work alongside each other, so should be considered together in the inheritance tax planning process. However, the eligibility criteria are strict, and claims are often heavily scrutinised by HMRC. It is therefore essential to obtain the correct advice on how estate planning may affect your ability to claim these valuable reliefs.
When making a will, farming clients should take into account all those generations and family members contributing towards the livelihood of the farm, as well as those who live on the estate, and plan accordingly for the sharing of the business and estate.
Residence Nil Rate Band (RNRB)
With the new RNRB - introduced April 2017 - farming families have even more to consider when estate planning. It is a potentially valuable relief which can, if utilised properly, reduce inheritance tax even further.
However, the rules are strict, and securing the RNRB is only possible if property is passed to direct descendants, (children/ grandchildren/great grandchildren). This may seem particularly unfair to farmers who intend to pass the farm onto other family members (such as nephews and nieces) who have contributed to the business. Similarly, if property is left on discretionary trust, even if direct descendants are in the class of beneficiaries, this would mean that the RNRB is lost.
RNRB offers inheritance tax relief on main residences passed to direct lineal descendants in addition to an individual’s current nil rate band of £325,000.
The RNRB applies to deaths on or after 6 April 2017 and will be: £100,000 in 2017-18 rising in stages to: £175,000 in 2020-21
For couples who qualify for the relief, an inheritance tax saving of £140,000 can be made, but the rules are tricky and advice should be taken.
Author: Daniel Prince
Published on 6th April 2017
(Last updated 8th May 2017)