Landowners urged to prepare for ten-year tax valuations

    Rural estates with relevant property in Trusts face ten-yearly tax charges, according to experts. This highlights the importance of sufficient tax planning and regular reviews to optimise opportunities of mitigating tax liabilities.

    Valuations for Inheritance Tax usually occur every decade. The amount of tax charged at each ten-year anniversary is the value of any relevant property held by the Trust immediately before that anniversary, after allowing for any business or agricultural relief.

    The rate of the ten-yearly charge is 30% of the rate for lifetime gifts. If the charge arose on 6 April 1996, the rate would be 30% of 20% i.e. 6% tax, over the applicable nil rate band, less any chargeable transfers made by the settler in the seven years preceding the creation of the Trust.

    Such valuations are governed by the RICS ‘Red Book’, which defines the basis for valuation as ‘the price which the property might reasonably be expected to fetch if sold in the open market at that time. However that price must not be assumed to be reduced on the grounds that the whole property is to be placed on the market at the same time.’

    Many tax planning issues can be addressed in advance of a ten-year Inheritance Tax valuation, helping to mitigate the amount of 6% tax paid on non-relievable assets. Some areas which may need addressing on farms and estates are:

    Tenancies: Converting old Agricultural Holdings Act tenancies to new tenancies by a surrender of the existing tenancy and re-grant of a new tenancy on similar terms. This increases Agricultural Property Relief (APR) from 50% to 100% on qualifying assets.

    Woodlands: Ensuring any Estate woodlands are on a business carried out for gain, consequently benefiting from Business Property Relief (BPR) at 100% for qualifying assets.

    Non-agricultural use: Limiting any non-agricultural use (eg. pony paddocks or horse enterprises) which would jeopardise any APR at 100%.

    Potential medium-term development land: APR is only available on the agricultural value of agricultural property. Development value counts as non-agricultural; however, it may qualify for BPR at 100% if the relevant property was farmed by a beneficiary himself.

    Residential property: The letting of residential property needs to be ancillary to any farming, forestry, woodland and sporting activities, otherwise there is a danger that it will not qualify for BPR. The Tax Tribunal found in the taxpayer’s favour on this issue in Brander v HMRC.

     
     

    Key contacts

    Johnny Dudgeon FRICS FAAV

    Johnny Dudgeon FRICS FAAV

    Director
    Estate Management

    Savills Lincoln

    +44 (0) 1522 508 952

    +44 (0) 1522 508 952