The Office of Tax Simplification is looking at the structure of the Inheritance Tax (IHT) system, with “major implications” for farmers expected. In January the Chancellor of the Exchequer Philip Hammond’s letter to the Office of Tax Simplification (OTS) instructed a review of the Inheritance Tax (IHT) system.

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To kick start its review, the OTS has now issued a call for evidence.To take the on-line survey, which should take about 10 minutes, please click here

Paul Morton, OTS Tax Director, said:

“This call for evidence and survey will help inform our research into Inheritance Tax and the recommendations we make in our final report. We know that there is a great deal to consider and we want to explore this with the help of individual taxpayers, as well as professional advisers and representative groups.

“In a nutshell, while tax rates are for government, the role of the OTS is to challenge tax complexity and so help all users of the tax system, and so we hope to hear from as many individuals as possible. We are keen to hear both from those who have had some experience of dealing with Inheritance Tax and those who are concerned about it, but who may be unfamiliar with it.”

Jamie Younger, Partner with Chartered Accountants Saffery Champness, says the review has been “anticipated for some time. Whilst it only applies still to a small percentage of taxpayers at around 5%, clearly those owning land and property are likely to be affected – hence it is of particular relevance to the farming and landed estates sectors,” Mr Younger said.

The OTS, in its scoping document, said that the overall aim of the review was to identify opportunities and develop recommendations for simplifying IHT from both a tax technical and administrative standpoint. An OTS report will be published in autumn 2018 providing an initial evaluation of aspects of the current IHT regime and what they mean for taxpayers, HMRC and the Treasury.

It will also identify opportunities for simplification of IHT supported by analysis and evidence; and that offers recommendations for Government to consider. The scope of the review is also now known and includes the process of submitting IHT returns, gifts rules and their annual thresholds; administrative and practical issues around estate planning, compliance and disclosure; complexities arising from IHT reliefs; the impact of taxpayer decisions, investments etc because of IHT rules; and the perception of the complexity of IHT rules among taxpayers, practitioners and industry bodies.

Mr Younger continued: “The current IHT system that we have been working with since the mid-1980s has become very much a part of our tax planning process, and the reliefs available, and particularly those in that apply to the rural sector and agricultural enterprises, are essential aspects in the make-up of many farm and estate businesses and their structure in terms of tax. This review could have major implications and we will be following its process and recommendations assiduously as it moves forward.”

You can currently pass on some agricultural property free of Inheritance Tax, either during your lifetime or as part of your will.

Agricultural property that qualifies for Agricultural Relief is land or pasture that is used to grow crops or to rear animals intensively. It also includes:

• growing crops
• stud farms for breeding and rearing horses and grazing
• trees that are planted and harvested at least every 10 years (short-rotation coppice)
• land not currently being farmed under the Habitat Scheme
• land not currently being farmed under a crop rotation scheme
• the value of milk quota associated with the land
• some agricultural shares and securities
• farm buildings, farm cottages and farmhouses

These do not qualify for Agricultural Relief:

• farm equipment and machinery
• derelict buildings
• harvested crops
• livestock
• property subject to a binding contract for sale

The property must have been owned and occupied for agricultural purposes immediately before its transfer for:

• 2 years if occupied by the owner, a company controlled by them, or their spouse or civil partner
• 7 years if occupied by someone else

More information is available here: https://www.gov.uk/guidance/agricultural-relief-on-inheritance-tax