Secure Your Farm's Future

Inheritance Tax (IHT) is currently charged at a rate of 40% on the portion of an estate above the nil rate band threshold of £325,000 (subject to variation based on specific circumstances). For large estates, this can result in a significant IHT liability. However, Agricultural Relief (AR) of up to 100% is available for qualifying farming activities.

AR covers agricultural property and land used for crop cultivation or intensive animal rearing, but it is limited to the agricultural value, which may differ from the open market value. AR can also extend to:

• Stud farms for breeding and rearing horses and grazing
• Woodland ancillary to the main farming activities
• Trees planted and harvested at least every 10 years (short-rotation coppice) for renewable fuel
• Some farmland managed under Habitat Schemes
• Certain agricultural shares and securities
• Farm buildings, cottages, and farmhouses

This list is not exhaustive and can change. For example, vineyards and cider-making orchards have recently become eligible for AR. HMRC evaluates farming estates comprehensively, considering land use and occupancy. Any deviation from agricultural use can jeopardize AR qualification.

Farm owners might separate the farm business into trading and non-trading activities or consider gifting part of the farm to the next generation. An outright gift requires the giver to survive seven years to avoid IHT inclusion, although AR/BR relief may still apply if the giver does not survive. It’s important to note that outright gifts may incur Capital Gains Tax (CGT).

Alternatively, gifts can be placed into a trust, potentially deferring immediate CGT but possibly incurring an immediate 20% IHT charge if reliefs do not apply. The right approach depends on individual circumstances and goals. Early planning is crucial to enable diversification while minimizing IHT exposure. Trusts offer greater benefits than wills by providing ongoing asset management and protection against disputes and financial mismanagement.