Q: On the surface it looks as if the Summer Budget has brought good news for us farmers with regard to some of the inheritance issues that often stop children from wanting to take over a farm. But as I’m a natural cynic I’m wondering whether there are any catches I should be aware of?
A: As always with these matters it is essential that people fully understand the implications of any legislation changes and look at their long term impact. With an additional inheritance tax allowance of £100,000 being introduced from April 2017 where a residence is passed to a direct descendant on death, and further rises in relief planned after that, it should have a favourable impact on farmhouses. Farmers will however need to review their Wills and inheritance tax plans to ensure the relief is not wasted.
One of the key issues to be aware of is the Government’s clampdown on IHT avoidance schemes, and in particular the use of deeds of variations of a Will. Currently, if all the beneficiaries agree, such a deed can be used to change the terms of a Will to help reduce IHT liability. However, a forthcoming consultation to look into this has been announced and the outcome could mean that the opportunity to apply a deed of variation to a Will may no longer be possible. This potential loss of flexibility makes tax planning even more important than ever and highlights the need for farmers to put into place a well-structured succession plan.
The good news, however, is that pension funds can now be passed down the generations, which could provide another effective way of avoiding inheritance tax. And other important issues to consider are important announcements affecting such as Annual Investment Allowance and Compulsory Purchase Orders.