Shropshire Farming Talk: Possible Inheritance Tax changes prompt business rethink

If APR is abolished, inheritance tax liabilities could increase substantially, with a farm valued at £2 million facing an estimated tax bill of £600,000.

This change would predominantly impact landowners not actively trading and would affect landlords of Farm Business Tenancies (FBT’S) and Agricultural Holding Act (AHA) Tenancies.

Although Chancellor Rachel Reeves hasn’t specified any changes to APR, in Labour’s first budget, which is scheduled for October 30, she has indicated that taxes are likely to rise but that national insurance, VAT or income tax will remain untouched. That leaves inheritance tax, capital gains tax and pensions up for grabs.

Pre-election, the then Defra Secretary Steve Barclay warned that Labour were ‘secretly planning to scrap inheritance tax relief for farmland’. APR currently offers significant inheritance tax relief for family farms.

However, the new government’s stance on APR is still unclear, making the future of this relief is uncertain.

APR has been part of the discussion for a long time now, and with a new government in place, there is an even stronger chance changes to APR will come.

I advise landowners to carefully consider alternative options to their land management strategies, perhaps moving from FBT agreements to share or contract farming agreements. This shift can help reclassify the farm as a trading entity, making it eligible for the other important relief - Business Property Relief (BPR), upon death. The landowner would need to have been actively trading in business for two years to claim this relief on business assets.

Although moving away from an FBT to a share or contract farming agreement will mean changes for both the landowner and tenant, there are a number of impacts that both parties should consider, adds Mrs Shepherd.

For landowners:

1. Increased earnings potential: Earnings are based on a share of the profits, which could be higher than fixed rent payments.

2. Active farming role: Landowners will need to take on farming responsibilities, which will require an initial financial outlay until profits start flowing.

For current tenants:

1. Reduced financial risk: The landowner funds inputs, with contractors receiving a contractor’s charge. This arrangement allows current tenants to farm without as much financial exposure.

I'd urge landowners at risk of large tax inheritance tax bills to explore share or contract farming agreements as a viable alternative at the appropriate time.

Make sure you pay attention to the budget announcement on October 30.

Transitioning to share or contract farming agreements could offer a viable solution, provided it is approached with careful planning and expert guidance. Seek advice before entering into any agreements and get the right one in place. Everybody’s position will be different, and it’s a case of one size does not fit all.

It is also important to evaluate assets, business structure and possible IHT reliefs regularly. There may even be future changes to BPR, so it has never been so important to review affairs.

by Charlotte Shepherd, Berrys