WARNING - Diversification Could See Farmers Face Inheritance Tax

There is much in the press informing us of how many farmers are branching out into other activities/businesses.

 

The potential to diversify is massive. We hear about farmers diversifying into tea rooms, riding schools, bed and breakfast, outdoor activities and even a specialist bra supplier (Ample Bosom) in order to keep their main income healthy.

 

However, farmers must be aware of the potentially dangerous inheritance tax implications in diversifying their business.

 

Changes in how land is used can affect the farmer's entitlement to Agricultural Property Relief (“APR”) for Inheritance Tax (“IHT”). APR is a valuable relief for owners of rural property but it can cause problems when farmers diversify i.e. if agricultural land and buildings are adapted for alternative purposes they may not be entitled to APR.There are also important rules regarding not only the occupation but the length of ownership of the property. Farmers and land owners who have decided to change, or are considering changing, the use of their land, should be aware that they can lose APR. If they do so, to mitigate IHT, they must try and ensure that they qualify for the alternative, Business Property Relief (BPR.)

 

For further information see:

New Business Ventures Could See Farmers Face Inheritance Tax warns lawyer

or contact Latimer Hinks on 01325 341500

Anne Elliott is a member of the Agricultural Law Association, as well as a Recommended Professional for the Tenant Farmers Association. In 2011, she was cited in the prestigious Legal 500 directory for both her work on Inheritance Tax and in the category of Agriculture and Estates. This was followed by a recommendation in Chambers 2012 for her expertise concerning, among other areas of law, the Agricultural Holding Act.

 

 

The Thorny Issue of Agricultural Diversification

Anne Elliott, Latimer Hinks Solicitors

It is no surprise that the farming community is becoming more and more attuned to the attractions of diversification. Challenged by the threats of lower dairy prices and higher feed prices (to say nothing of the weather and its threat on yields) taken with the Eurozone problems many continue to look for new commercial opportunities. We have seen a steady increase over the past decade in the number of landowners seeking advice from us in this important area of diversification.

Many farmers and landowners have sought to maximise on the commerciality of their land and have embraced various opportunities. Many have converted under-used or redundant farm buildings, including barns and storage facilities, to provide residential holiday or commercial/business lets, some with considerable success. Other new projects include children's nurseries, small office developments, farm shops, units for storage and warehousing and riding liveries and schools. Other key projects include wind farm developments, commercial fishing lakes and mineral exploitation and landfill.

Potential pitfalls arise when owners of agricultural land choose to go down the diversification route. Some changes can prejudice the farmer's entitlement to Business or Agricultural Property Relief for Inheritance Tax (IHT) purposes. Altering the status of the use from agricultural to, e.g. equine can affect the farmer's entitlement to these very valuable IHT Reliefs.

The principal condition for securing Agricultural Property Relief is that the land must meet the IHT definition of 'agricultural property' and be used for agricultural purposes. Farmers and land owners who decide to change the use of their land for an alternative commercial use run the risk of losing Agricultural Property Relief and thus becoming subject to Inheritance Tax unless they can still qualify for Business Property Relief. It is crucial to seek legal advice before implementing agricultural diversification.

Another important condition relates to the period of ownership and occupation. In general terms, owner occupiers who are trading can secure maximum reliefs after two years - otherwise a seven year period of ownership is necessary.

The rules relating to Agricultural and Business Property Reliefs are complex and professional advice should always be sought.

Agricultural diversification schemes provide a welcome and crucial income stream to supplement that generated by the traditional farm business, but there are possible tax problems, so care is needed.

In summary, the issue of land diversification can be a thorny one. The crucial point to remember is the need to seek sound legal and accountancy advice before implementing any diversification scheme. Agricultural and Business Property Reliefs can be retained, but careful planning is often crucial.

Anne Elliott is a Partner and agricultural law specialist at Latimer Hinks Solicitors. Anne is a member of the Agricultural Law Association as well as a Recommended Professional for the Tenant Farmers Association. In 2011, she was cited in the prestigious Legal 500 Directory for both her work on inheritance tax and in the areas of agriculture and estates. This was followed by a recommendation in Chambers 2012 for her expertise concerning, among other areas of law, the Agricultural Holding Act. Latimer Hinks has a team of around 50 people serving private and corporate clients.

For further information: www.latimerhinks.co.uk or call 01325 341 500. Please note: This article is intended as guidance only. No responsibility for loss occasioned/costs arising as a result of any act/failure to act on the basis of this article can be accepted by Latimer Hinks. In addition, no responsibility for loss occasioned/costs arising as a result of any act/failure to act on the basis of this article can be accepted by the firm