Succession planning is often a sensitive area and one difficult for family businesses to tackle which can lead to it to being left on the back burner. We would urge all businesses to consider and plan for the future. Facilitation from a third party that has the technical expertise in inheritance tax planning and an understanding of the business and family can often ease the process and lead to an efficient plan that all parties buy into.
Agricultural property relief
There are valuable inheritance tax reliefs available to rural businesses. Agricultural property relief (APR) can provide relief at either 100 per cent or 50 per cent of the agricultural value of an asset. The relief is dependent on a number of factors including whether the asset is used by the owner or let and the length or ownership. When claiming APR one area of constant challenge from HMRC is around the farmhouse. Is the size and character of the house proportionate with the scale of the agricultural operations and is the farmhouse occupied by farmers who have a significant role in the management or actual operations of the farming activities? This can prove difficult when older generations wish to take a back seat in the farming operations but do not want to move out of their home.
Business property relief
Business property relief (BPR) can also apply where an asset is being used as part of the trade and can again provide relief at either 100 per cent or 50 per cent depending on the ownership structure. If an asset is owned outside of the actual business but used in it the maximum BPR will be only 50 per cent and in some instances no relief is available at all. One benefit BPR brings is that it covers the full market value of an asset rather than just the agricultural value. This distinction is important where land and buildings have a value over and above the pure agricultural value, i.e. where there is any development potential or ‘hope value’.
With the inheritance tax rate at 40 per cent above any tax free amounts, not having an efficient succession plan in place can be extremely costly and lead to significant borrowings or even to the sale of some assets. For this reason we would encourage everyone to start planning.
What are your priorities?
We want to understand what the key priorities are for rural businesses rather than what we think they might be. We would like to know the real issues you and your business are currently facing and what changes you would like to see to ensure the rural economy thrives. Please take a few minutes to take our survey and share your views.