The Office of Tax Simplification (OTS) has offered a series of changes to inheritance tax which could affect farmers. Its report, Simplifying the Design of Inheritance Tax, for the UK Government sets out a number of changes which are designed to simplify the inheritance tax system currently is criticised for being overly complex and not raising significant amounts of wealth.
Jamie Younger of Saffery Champness said: “Many businesses and farms currently qualify for either or both full Agricultural Property Relief (APR) and Business Property Relief (BPR), the rationale of these reliefs being that this helps prevent sale or break up of the business to finance IHT payments.
Given the scope of this report, it seems very likely that the current rules will be subject to some change.”
Included in the report are the following proposals:
Government should consider whether it would be appropriate for the level of trading activity for BPR to be set at a lower level than for Capital Gains Tax (CGT) reliefs. The current threshold for BPR is a ‘wholly or mainly’ test, but aligning this with CGT reliefs would in effect ‘raise the bar’ to an 80% trading test.The rules around lifetime gifts should be simplified by creating an annual allowance for gifts, reducing the seven-year period required before gifts are exempt from Inheritance Tax to five years and abolishing taper relief. The CGT uplift that occurs on death if an IHT relief or exemption has been claimed should be removed.Government should review the appropriate treatment of Limited Liability Partnerships for the purposes of BPR trading requirements.HMRC should review its current approach around the eligibility of farmhouses in “sensitive cases”, such as where the farmer needs to leave the farmhouse for medical treatment or to go into care.HMRC guidance as to when a valuation of a farm or business is required should be clearer and, if required, whether an estimate rather than a formal valuation is sufficient. Consideration should be given to aligning the IHT treatment of furnished holiday lets (FHLs) with that of Income Tax and CGT.
The Office of Tax Simplification (OTS) has offered a series of changes to inheritance tax which could affect farmers. Its report, Simplifying the Design of Inheritance Tax, for the UK Government sets out a number of changes which are designed to simplify the inheritance tax system currently is criticised for being overly complex and not raising significant amounts of wealth.
Jamie Younger of Saffery Champness said: “Many businesses and farms currently qualify for either or both full Agricultural Property Relief (APR) and Business Property Relief (BPR), the rationale of these reliefs being that this helps prevent sale or break up of the business to finance IHT payments.
Given the scope of this report, it seems very likely that the current rules will be subject to some change.”
Included in the report are the following proposals:
Government should consider whether it would be appropriate for the level of trading activity for BPR to be set at a lower level than for Capital Gains Tax (CGT) reliefs. The current threshold for BPR is a ‘wholly or mainly’ test, but aligning this with CGT reliefs would in effect ‘raise the bar’ to an 80% trading test.The rules around lifetime gifts should be simplified by creating an annual allowance for gifts, reducing the seven-year period required before gifts are exempt from Inheritance Tax to five years and abolishing taper relief. The CGT uplift that occurs on death if an IHT relief or exemption has been claimed should be removed.Government should review the appropriate treatment of Limited Liability Partnerships for the purposes of BPR trading requirements.HMRC should review its current approach around the eligibility of farmhouses in “sensitive cases”, such as where the farmer needs to leave the farmhouse for medical treatment or to go into care.HMRC guidance as to when a valuation of a farm or business is required should be clearer and, if required, whether an estimate rather than a formal valuation is sufficient. Consideration should be given to aligning the IHT treatment of furnished holiday lets (FHLs) with that of Income Tax and CGT. 
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