Landowners can receive very favourable Inheritance Tax (IHT) treatment in respect of the value of their farming assets if they are actively involved in a farming trade.
On death it is possible that no IHT will become due on the full value of the farming assets and in addition there is the possibility that any uplift in value due to development potential may qualify for Business Property Relief (BPR) and also the availability of Agricultural Property Relief (APR) on the farmhouse.
Structured correctly, entering into a contract farming arrangement can mean that the landowner remains eligible for these valuable IHT reliefs. It is however important that the landowner retains control over the cropping of their land, buys the required inputs, sells the crops, claims the basic payment and that there is an element of financial risk (as opposed to an FBT, for example).
There are other potential benefits to a contract farming arrangement, including:
- No need to buy expensive farm machinery as the contractor will provide any equipment required.
- A significant reduction in the physical involvement in day to day farming activities.
- More time can be spent away from the farm on other ventures.
- Arrangements are structured so that the performance of the contractor determines their reward.
- Income tax benefits such as the availability of farmers averaging and the eligibility to make pension contributions.
- Potential to earn increased returns compared to an FBT (although this is of course not guaranteed).
If you are concerned about the availability of IHT relief on your farming assets or are considering entering into a contract farming arrangement, please do not hesitate to contact a member of our Agricultural team to discuss your options.