Farming News - Landmark ruling could save farmers thousands in inheritance tax

Landmark ruling could save farmers thousands in inheritance tax

20 Nov 2018
Agronomy / Frontdesk / Finance

Farmers who offer additional services could protect their businesses from thousands in inheritance tax following a court ruling against HMRC.

Using Business Relief to mitigate Inheritance Tax HMRC

The judgement, which regarded a case involving a livery stable, means that more farms could potentially qualify for either 50% or 100% relief from inheritance tax (IHT) on the transfer of relevant business assets, resulting in huge savings for successors.

David Kirwan from Kirwans law firm explained: “This landmark case centred around a livery stable and the question of whether it was considered a holding investment - a company that earns income from the payment of dividends, rent or interest and are liable to inheritance tax - or a working business.

“The late Maureen Vigne, who previously owned the livery stables, didn’t just own the stables as an investment; she also operated it as a business, employing a yard manager, administering worming products when required, and carrying out daily checks on the horses.

“Despite HMRC’s claim that the estate should be considered a holding investment as it was not actively engaged in high levels of economic activity, the upper tribunal found that the additional services she provided meant it should indeed be considered a business. As such, it would be eligible for relief.”

However, Mr Kirwan pointed out, in order to benefit from the ruling, the successor needs to be able to demonstrate the late farmer was doing more than simply letting land.

He said: “There needs to be clear evidence that the farmer had taken the business, and the growth of it, seriously. This could include taking on staff with relevant qualifications, or the clear offering of additional services. The important point is that the court would need to see proof of the owner’s obvious intent to build a business rather than simply invest in land.

“That said, diversifying can be an expensive and challenging step to take, so the potential savings should be considered against the investment, insurance and staffing costs required in order to ensure it’s right for the individual concerned.”

YOU CAN GET BUSINESS RELIEF ON:RATE
A business or interest in a business100%
Shares in an unlisted company100%
Shares controlling more than 50% of the voting rights in a listed company50%
Land, buildings or machinery owned by the deceased and used in a business they were a partner in or controlled50%
Land, buildings or machinery used in the business and held in a trust that it has the right to benefit from50%

Source gov.uk

Other businesses which may be debatable for qualifying for relief, depending on the nature of their services provided, include:

  • Caravan parks which include lettings and sales
  • Mixed agricultural estates with lettings
  • Some forms of property management

The decision offers new confidence to business owners, especially those that own land to operate and trade. It also serves as a useful reminder to us all that owning certain types of assets that qualify for business relief can help reduce inheritance tax liabilities.