As covered in our featured article, a new Inheritance Tax nil rate band has been introduced from April 2017 specifically relating to the main residence of the deceased.
Starting at £100,000 and rising to £175,000 by April 2020, this Main Residence nil rate band is designed to help pass on a home to direct descendants of the deceased, including children or grandchildren, tax free.
This new allowance will however be tapered away from those leaving an estate of more than £2,000,000 at a rate of £1 for every £2 over the £2,000,000 threshold. Estates worth over £2,350,000 will not therefore benefit at all.
Based on current land and property prices, a typical farm in excess of (say) 200 acres with a farmhouse is likely to exceed this threshold meaning landowners are unlikely to qualify for this valuable relief.
It is possible that a farmhouse may qualify for up to 100% Agricultural Property Relief (APR) however in order to do so, certain conditions must be met.
To qualify for APR an asset must be agricultural property, owned for a specified period and used for agricultural purposes at the date of death.
Consequently, for the farmhouse to qualify for APR, it must be used for agricultural purposes and therefore the occupiers should be actively farming the land. The farmhouse also needs to be ‘character appropriate’ to the farm as a whole.
It is also worth noting that APR is restricted to the agricultural value of the property – which may be lower than the actual market value.
Careful consideration is therefore required, especially when starting to look at ways to retain the farm but reduce your involvement in the day to day farming operations.
Renting the land on a Farm Business Tenancy or retiring from a family partnership could put IHT relief on the farmhouse and other assets at risk and it may be worthwhile considering your options which may help preserve the valuable relief.
If you are in any doubt whether your farm assets should currently qualify for IHT relief in the event of your death – act now. We would be happy to talk to you to establish the facts and review your options.
