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Agricultural Property Relief and 'Hope Value'

06 April 2006

I was bemused recently to read in a certain glossy women’s magazine that “your estate becomes exempt from inheritance tax after just two years if you actively farm.” Unfortunately that is a commonly held view even within the farming industry and perhaps explains why so many involved in agriculture do not give proper attention to putting their affairs in order.

It’s not, of course, the case that if you are involved in farming your estate is necessarily going to be exempt from inheritance tax. Agricultural property relief against inheritance tax is an extraordinarily generous relief at first glance but on closer inspection may not protect your assets to the extent you expect. Just one example – you own the family farm having inherited it from your parents. You now farm it in partnership with your children. There is a period barn which is not terribly useful any more ( in fact the maintaining of it makes it more of a liability).However someone somewhere would probably love to convert it into a bijoux residence so it has “hope value”. It might surprise you to learn that on your death the Inland Revenue will take the hope value into account and that hope value will not qualify for any agricultural property relief against inheritance tax.(Business property relief may assist depending how the business is structured but that’s another story)

There may be action which can be taken to minimise the exposure of your estate to inheritance tax on death and that can often be done by careful drafting of wills to maximise availability of reliefs. For example those who are married should be checking that the “nil rate band” amount available to each spouse is being used by the wills to maximum effect. Minimising the exposure of your estate to inheritance tax might mean all the difference between the next generation being able to make a living from the farm or not. Where you need to make provision for family members who will not be farming you’ll want to waste as little as possible on payment of inheritance tax if you are going to be able to achieve that difficult feat of being fair to all.

Getting a lawyer to check over your affairs and review your will to ensure it is “tax efficient” should not be an expensive exercise but could be a worthwhile investment for your family.

For more information please contact Nicola Hopper, Associate.
 

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