Inheritance Tax and the Family Farm - Spring 2006

01 April 2006

On death, Inheritance tax is levied at *40% on that part of the value of the estate which exceeds £275,000. It is the market value of assets which is relevant. It is a common misconception that Inheritance tax is a problem only for the wealthy, but in today's climate when agricultural land and buildings fetch a price on the open market far exceeding their agricultural value, most farming families who own any part of the land they farm have a potentially serious Inheritance tax problem.

There is a relief against Inheritance tax known as ‘agricultural property relief’ but its availability is frequently misunderstood.

Undoubtedly the intention of the legislation was to protect the integrity of farming businesses, so that the next generation were not forced to sell up on a death to pay tax. However, you only get the tax relief if you satisfy all the detailed conditions in the legislation. It is very easy for a genuine farming business to miss out on Inheritance tax relief because a condition has not been satisfied.

We do advise those in involved in the farming industry to review their affairs to ensure that their business is structured so as to take full advantage of the relief. If there are proposals to change the way the business is run or to diversify out of agriculture we would urge you to check, before implementing any changes, whether this will have any impact upon the availability of agricultural property relief. We can assist with this and advise on the availability of the associated relief known as business property relief.

*Note: tax rates quoted are those in force as at 31/1/2006. It is a sensible precaution to review your situation every year around the time of the Chancellor’s budget because tax rates are subject to change.

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