Fiona Ashworth, Head of the Wills and Estates team at Thompson Smith and Puxon (TSP), discusses Agriculture and Reliefs.
“Between the duties expected of one during one’s lifetime, and the duties exacted from one after one’s death, land has ceased to be either a profit or a pleasure” said Lady Bracknell in the Importance of being Earnest by Oscar Wilde. Even though land prices have vastly increased in value over the past few years, making a profit from the land or taking pleasure in farming the land, are still complexities that farmers have to contend with. The duties expected of a farmer in his day to day life involve regular inspections from government and non-government officials, thus always putting him under some kind of pressure. HM Revenue and Customs are forever changing the boundaries as they attempt to inveigle the profits from the farming industry. In order to survive the turbulent times, when the weather is against them, and the prices are low, many farmers have chosen to diversify away from agriculture into business ventures. But how dangerous is this, when you consider that agricultural practices are more or less covered by Agricultural Property Relief from inheritance tax. How far can these diversifications go? Case law has provided us with some boundaries, and although a mix of businesses may still attract the relief, professional advice should be sought to ensure that the balance of agriculture is maintained. If all else fails Business Property Relief may be available to provide the farmer with some relief on his diversification escapades, but one shouldn’t risk the full 100% Agricultural Property Relief from Inheritance tax for the sake of a higher income, which may or may not be subject to income tax at 40% in any event.
The Inheritance Tax Act does not actually define the word ‘agriculture’ even though s.115(4) treats ‘the breeding and rearing of horses on a stud farm’ as agriculture for the purposes of the relief, but land used for horses for one’s own leisure is not covered.
We have also all heard many discussions about what constitutes a farmhouse, whether or not it is of a ‘character appropriate’ to the farmland, and whether the ‘farmer’ is in occupation.
It is advisable to take great care in making any decisions that affect the balance between the farm and the business, and always take good professional advice before embarking on something that may seem a good idea now, but have you considered the consequences for the future?
Fiona, who has a farming background, having been born and raised on a farm, and married to a farmer, can be contacted on 01206 217057 or by email at firstname.lastname@example.org. Fiona is pictured with Stephen Firmin (left) and Graham Wilson (right) of TSP’s Agriculture team.