Industry Eye: Landmark inheritance tax case proves a boost for farming businesses

I was once told that when beneficiaries of farming families have to pay inheritance tax, the deceased must have disliked their family more than they disliked the tax man!

Quite a bold statement, however in some instances, quite correct, due to the relatively advantageous position families have due to Agricultural Property Relief and the various tax planning options that are often available.

However in recent years, many farmers have diversified their businesses into non agricultural ventures, such as holiday cottages, caravan sites and lettings of cottages and business units, which threatened to result in the loss of tax reliefs and this has caused a number of issues with regard to long term tax planning and the potential threat of assets becoming liable for tax.

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However a triumph for tax payers has been achieved in the Earl of Balfour high court case in a precedent setting inheritance tax case, regarding landed estates carrying out a range of business activities. The Balfour case has been a lengthy battle, which concerned the activities on a circa 1900 acres estate, which consisted of two in-hand farms, three let farms, woodlands, sporting rights, commercial buildings and 26 let houses and cottages.

The estate originally recorded a successful Business Property Relief (BPR) claim for a mixed agricultural estate, in May 2009. However the HM Revenue & Customs (HMRC) subsequently appealed stating that the estate was an investment enterprise.

However, HMRC have recently lost their appeal and therefore this sets the precedent for 100 per cent BPR to potentially be available for landowners and farmers who carry out a range of business activities.

The case involved a complex set of ownership factors, however the main point of interest is the principle that traditional landed estates and in today's world this could include many larger farms carrying out a variety of diversified activities, could qualify for BPR on the basis that, as in the Balfour case, it was wholly or mainly carrying on a trading activity.

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One must consider that no two families or farms are ever the same, and continued legislation changes and new case law, means that families must regularly review their succession planning and ensure that they have the correct ownership structures in place to minimise tax and ensure that assets are correctly transferred to the next generation.

In summary, remember 'if you fail to plan, you plan to fail', therefore it is important to take stock and get sound professional guidance from your professional advisers, including solicitors, accountants and land agents, so that the next generation aren't left to pick up the pieces.

The potential to claim 100 per cent APR and BPR, through the careful structuring of business activities should ease the succession path to the next generation.

CW 18/9/10

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