The recent and long-awaited Inheritance Tax Review by the Office of Tax Simplification (OTS) has offered agricultural business owners hope that the “fiendishly complex” tax might be overhauled.
Agricultural Property Relief (APR) and Business Property Relief (BPR) are hugely important to the farming community. They help farms to be passed down through the generations by reducing and, in some cases, eliminating hefty tax bills when someone dies.
Both APR and BPR can give up to 100 per cent relief against Inheritance Tax (IHT) so the cost of any lost relief could be devastating. However, the OTS has praised these two reliefs in the first of its two reports for their simplicity in a sea of IHT complexity.
In addition, the report shone a spotlight on the taxation of furnished holiday lettings, which are commonly used by farmers to diversify their farm businesses. Usually, these lettings are treated as a trade for income tax and capital gains tax (CGT) but are not normally eligible for BPR, which means that they are subject to IHT. This is an anomaly that continues to catch out farming families.
The relief can often be lost because of the way a business is structured. However, if farmers took advice, they could potentially reorganise their assets so that they get 100 per cent relief.
Therefore, the simplification of the IHT system will be welcomed by agricultural business owners, as not only can navigating it without professional help be confusing but the time it takes to make a claim is often cited as a problem.