Farmers urged to plan ahead to avoid hefty inheritance tax bills

Farmers need to be aware how the structure of their business could affect their inheritance tax liab

Farmers need to be aware how the structure of their business could affect their inheritance tax liability, says Charlotte Webster, senior rural surveyor at Arnolds Keys. - Credit: Arnolds Keys

While many farming businesses are seeking new income streams, they must consider how diversification could affect their inheritance tax liability says CHARLOTTE WEBSTER, senior rural surveyor at Arnolds Keys – Irelands Agricultural.

With the planned cuts to direct farm payments in the next few years, many are looking to maximise income from other assets on the farm or estate.

Certainly we encourage all of our farming clients to look holistically at their holdings, and consider options for alternative revenue streams.

Simultaneously however, it is important to consider the implications of diversification on tax liability, and in particular for those looking to pass the farm or estate on to the next generation, inheritance tax (IHT). Having the right business structure in place is essential in order to benefit from the IHT reliefs available, and it may be beneficial to consider transferring assets which are unlikely to qualify for tax relief: a gift made at the right time could prevent a high tax bill later down the line.

It is not an exercise to be undertaken lightly, and indeed for many it can be an uncomfortable process. This can result in the matter being delayed, however many of the reliefs available have timeframes that must be adhered to, in some instances a period of seven years, meaning this is not something to be undertaken at the eleventh hour.

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Having a good team of advisors around you is key, and whilst a cup of tea around the kitchen table with your solicitor, accountant and land agent may feel like a costly exercise, it will inevitably result in a financial saving in the long term: indeed it could even prevent the need for future generations to sell off long-held family assets to meet an unnecessary tax bill.

As well as your advisors it is essential to involve those who may inherit, as there may be steps to take in the shorter term that will directly involve them. An example is questioning who should be occupying the farmhouse: who is responsible for the day-to-day farming? Often it is simply assumed that property which appears agricultural on the face of it will qualify, but there are nuances to the tests to be mindful of.

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At this stage it will be important to identify each other’s objectives and understand what each person has in mind for the future of the holding. This may inform any change in business structure or transfer of assets, and it will enable your advisors to keep an eye on the crucial balance between a “trading” holding and an “investment” holding.

It is fair to say that IHT and the reliefs are riddled with complexities, and more often than not the devil is in the detail. A good plan will be subject to regular reviews to ensure that it reflects any changes to legislation.

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