Now is the time to check land deeds
9th Jun 2009
In the last column I highlighted changes to Agricultural Property Relief (APR) for inheritance tax following the European Commission’s directive that the UK government was being discriminatory in applying the relief only to agricultural property and forestry owned in the UK.
The Chancellor has now extended APR to apply to relevant inherited property across the EU.
Obviously fearing a similar directive on Furnished Holiday Lettings (FHL), the government has also extended this relief to European properties until 2010/11 when all the income tax and capital gains benefits for such businesses are repealed unilaterally.
The qualification of these businesses for all income tax and capital gains tax reliefs emerged in 1983 to encourage farmers and landowners to utilise redundant cottages on their land.
These tax reliefs have been a boon to the tourist industry nationwide, and to the rural economy and coastal communities in particular. Again, the reliefs were limited to UK assets, prior to the new short term extension into Europe.
Immediate government reaction to this issue would be preferable to waiting for a further directive from Europe. However, this could result in increased long term investment outside the UK, which could be costly to our economy.
Future investment abroad would produce a better income return for owners because of the longer holiday season. However, it would also result in a lower tax return for HMRC because of our tax treaties with other countries. This is perhaps why the government has decided to abolished the relief in its entirety.
This has to be a terrible blow for the rural economy and UK tourist industry.
For inheritance tax, property owners would usually have a good claim for Business Property Relief (BPR), but I cannot see how BPR can survive once such properties are taxed as investments again and the capital gains relief is withdrawn.
The survival and extension of APR may only prevent short term further damage to the farming industry, especially as there is a reduced threat from further growth in the ‘lifestyle farmer’ phenomenon because of the current economic climate.
An upturn in fortunes may well see this relief disappear like that for FHL in its present form.
So, everyone who has invested in our countryside needs to be proactive in lobbying for answers and assurances on these predominantly rural issues.
Farmers and landowners should ensure their business structure and land ownership will qualify for both APR and BPR.
Now is the time to check land deeds and partnership agreements as well as tenancy/licence agreements to protect both forms of IHT relief for future generations, and to ensure that owners’ wills protect the position for both farming and non-farming children.
Any landowners who are thinking of passing assets to the next generation should do it now.
Author: Val Hutchinson, Inheritance Tax Consultant (info@bhplaw.co.uk)
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