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A Review on Inheritance Tax Relief

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Following our article in December 2018, more detail of administrative simplifications regarding Inheritance Tax (IHT) has been released by the Office for Tax Simplification (OTS). These could be of concern to farmers and landowners whose assets may currently qualify for Business Property Relief (BPR) or Agricultural Property Relief (APR).
Currently the “wholly or mainly” test is an imperative consideration for BPR where the business must consist of more than 50% trading assets vs investment assets. However, the OTS have suggested that BPR should come in line with the trading asset treatment for Holdover and Entrepreneur’s Relief for Capital Gains Tax, stipulating the business must constitute of 80% trading activities vs 20% investment activities to receive relief.
This will affect farmers and landowners with let property or those who have diversified interests in other investment assets. Where the estate may have previously been considered as “mainly” trading activities this new recommendation may limit their availability of BPR on inheritance by being “mainly” investment activities. Such changes could have a dramatic effect on estate planning for farmers and landowners where succession is a concern.
Furthermore, current tax laws allow a valuation re-basing exercise on death from which any future valuation uplift is calculated for Capital Gains Tax (CGT) purposes. In brief, the assets are passed though the deceased to the successor on the date of death at market value, as if they had paid such a market value for them on that date. Where such an asset has qualified for APR or BPR there has been no taxable charge on the deceased estate. The successor is then able to then sell the inherited property paying little or no CGT.
The OTS’s recent investigation found this current tax structure has resulted in assets being left to be inherited on death, rather than being transferred within their lifetime. The subsequent recommendation is that the valuation re-basing should be removed where there is an Inheritance Tax exemption, and that the person lawfully inheriting an asset should receive it at the historic base cost. This will result in significant CGT liabilities for beneficiaries disposing of assets held within a family for a considerable length of time.
Our team of Chartered Surveyors work closely with other related professionals to ensure our clients are best placed to manage their affairs from both practical and financial perspectives. Do not hesitate to contact a member of our team today on 01423 860322