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Industry Eye: Questions surrounding inheritance tax should be addressed at an early stage
As the famous quote goes: "Nothing is certain, but death and taxes". However, this doesn't necessarily have to be the case.
Inheritance Tax (IHT) is currently charged at 40 per cent of the value of an individual's estate over the current threshold of 325,000, subject to certain reliefs and spouse exemptions.
The major relief for farming is Agricultural Property Relief (APR).
Many people assume that if they have a farmhouse, land or buildings they automatically qualify for APR, but this is not always the case. Relief is only given on the agricultural value as opposed to the market value on eligible property, with any difference potentially liable for IHT.
Agricultural value assumes that a theoretical covenant is attached to the property restricting it to agricultural use only (similar to the occupancy clause of an agriculturally tied dwelling).
This excludes any value attributable to amenity, hope value or development value.
This can have implications on valuations for probate and IHT purposes, as more and more frequently the district valuer is challenging valuation figures and eligibility for APR and it is essential that the valuer carrying out the probate valuation is fully qualified and understands the eligibility criteria for any available reliefs.
Recent case law in respect of APR claims on farmhouses has resulted in much greater scrutiny from the Capital Taxes Office and the district valuer.
There will no doubt be further case law to clarify some of the ambiguity, but uncertainty reigns and it is vital to maintain the agricultural status of your property to the best of your ability.
However, it is not just on death that IHT should be considered.
Assessing the amount of prospective charge to IHT now and considering the availability of APR and Business Property Relief on the value of your estate and undertaking tax planning could mitigate future tax liability. Various actions can be taken to mitigate IHT, such as reviewing wills, securing mortgages on specific types of assets, creation of Trusts and making transfers out of your estate, although any lifetime transfers will also need to be considered alongside any Capital Gains Tax implications.
From experience we find it is best when matters are addressed at an early stage by taking a three-pronged approach with a knowledgeable land agent/valuer, solicitor and accountant.
The worth of tax planning is tested only on death and therefore it is important to review existing tax planning measures in case there has been or will be any major developments in statute and case law in the intervening years.
The future is uncertain and there is always the potential for changes to the IHT regime, but doing nothing may leave your family open to unnecessary tax liabilities.
In addition to carrying out probate valuations, Carter Jonas, as specialist valuers and chartered surveyors also play an active role in helping to assess potential tax liability for capital gains tax as well as inheritance tax.
Dan Taylor is an associate at Carter Jonas. Tel: 01904 558219; dan.taylor@carterjonas.co.uk
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Sunday 12 February 2012
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