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Farmers face tax hike as wealthy exploit IHT rules
Farmers could be hit by an HMRC clampdown on inheritance tax dodging, an independent financial adviser has warned.
by Michelle McGagh on Aug 01, 2012 at 15:35
Wealthy individuals buying up farmland to sidestep inheritance tax (IHT) are putting farmers at risk of a tax clampdown, an independent financial adviser has warned.
Purchasing farmland can provide a big tax planning opportunity as it benefits from agricultural property relief (APR) and business property relief (BPR). Land and buildings that benefit from these are exempt from IHT up to 100% of the value of the farmland.
This 100% IHT relief has made farmland a popular investment. However, you cannot simply buy a field and receive the relief: the farmland has to be used and managed even if it is not the owner of the land ploughing the fields.
Farmers in the firing line
However, Karl Hartey, managing director of Applewood Wealth Management, an independent financial adviser in Chester, has warned that buying farmland as a tax-minimising measure is putting genuine farmers at risk of a clampdown or additional taxes from HM Revenue & Customs.
He said farmers had two options to avoid any additional IHT they may face in future: ‘One option would be to make gifts over the seven-year period, or they could take out insurance,’ he said. If part of an estate is gifted away and the person making the gift survives seven years then it is free of IHT, but if they die within the seven year period the gift could be liable to IHT.
‘However, neither is ideal as HMRC will end up with tax which they don’t receive currently because those who have the ability to pay tax are using avoidance planning, which once again affects the normal man on the street.’
Price of farmland rises
Hartey pointed out that the mass purchasing of farmland was having another detrimental effect on local farmers, who are forced to pay increasingly high prices for land.
Figures from property group Knight Frank show that over the past three months the price of land has risen 3.7% to £6,295 an acre, and over 60 years it has risen more than 11,000%.
‘As we live in a rural area with plenty of farming clients, there is a concern that city money is buying up farms and small holdings to offer against IHT, as they did with forestry before,’ Hartey said.
‘However, this prices out the locals, and with the situation already challenging for farmers, they could do without the threat of being taxed on a farm which has been in the family for generations.’
A spokesman for HMRC, however, dismissed the idea that genuine farmers would be penalised. ‘Every case depends on specific facts but to qualify for the relief the property must have been dedicated to agriulture for a given period prior to the owner's death,' he said.
To learn more about avoiding inheritance tax, check out these guides from The Lolly:
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by Michelle McGagh on Dec 10, 2013 at 13:52