With the Budget now less than a week away, many of us are wondering what the Chancellor has in store for the country. As a firm, we are interested to see how any changes to taxes can impact our clients, as well as the wider business community. Here in Kent particularly, we have many clients in the agricultural sector and we’ve been keeping a close eye on anything which may affect them. What could the Budget deliver and how could it impact business owners operating in the farming community?
Agricultural Property Relief
This area of tax relief has been thrown into speculation. This is because Agricultural Property Relief is valuable and can see inheritance tax (IHT) bills dramatically reduce. It is available on property, including woodland, pastures, farm buildings, farmhouses and cottages, which is transferred as a gift during someone’s lifetime, or after death. It means that many farmers are currently able to pass on agricultural property free from IHT as long as the person who owned the land farmed it themselves, or the land was used by someone else on a short-term grazing licence, or it was let on a tenancy on or after 1 September 1995.
What could the Budget bring?
Agricultural Property Relief is an area constantly under scrutiny by HMRC because there are many loopholes for tax evasion. HMRC don’t require evidence that the taxpayer is directly involved in farming in order to secure the base Agricultural Property Relief. It was thought that HMRC showed particular favour to the agricultural sector in allowing this, simply because it is an area that is typically full of small, family-run businesses.
However, it is possible for wealthy individuals to invest in farm land, have no intention of working the land but secure rental income from the farmer, only to be exempt from IHT on that asset. Therefore, with IHT being a lucrative tax for the Treasury, we have suspected for some time that the Government may well choose to clamp down on Agricultural Property Relief.
Agricultural Property Relief closely represents Business Property Relief, which exempts trading businesses from IHT. The Government could seek to abolish Agricultural Property Relief and bring the two reliefs more into line with each other.
What will that mean for farmers?
If these changes do go ahead in the Budget, it will have no effect on farmers who are actively farming their land, or farming land they rent. However, it will have an effect if a landowner has entered into a Farm Business Tenancy (where a third party farms the land). Under the Agricultural Property Relief, the land would be exempt from IHT for the land owner. Under Business Property Relief rules, it would not be.
We will be keeping an eye on the Autumn Budget on 29 October and you can look out for updates on our Budget Hub.
If you would like any advice relating to your farm business, contact Wilkins Kennedy’s agricultural team to see how we can help.