When is the right time to hand down assets?
It’s that difficult conversation between parents and children that can often occur in farming family businesses. What do the parents’ own and when will they hand down responsibility in the business and the assets used in the business? For inheritance tax (IHT) purposes, has any planning been carried out to mitigate potential liabilities on death? If the overarching family financial objective is to preserve wealth for future generations then there is very little benefit in handing over a large percentage of the estate to the government if this can be avoided with timely planning and addressing that tricky conversation.
Whilst pure agricultural land may qualify for agricultural property relief (APR), what about the 10 acre outlying plot with development potential? Any value in excess of agricultural value may be liable to an IHT charge, depending on how the land is held and farmed.
Where land is farmed under grazing, contract or share farming agreements, are the arrangements, including the practical execution of the agreements, sufficiently robust to support the argument that farming is actively being carried out. Failure of this test jeopardises APR on the farmhouse and business property relief (BPR) on non-agricultural property or value in excess of agricultural value.
What about the holiday let which does not qualify for BPR, due to the lack of provision of significant additional services to holidaymakers, or that share portfolio in non-IHT efficient stocks and shares? There are many opportunities to protect these assets from IHT.
Is the joint estate worth in excess of £2M (before relief)? This is the limit above which the additional residence nil rate band (RNRB) (currently £100K per person) starts to taper off. Can assets be gifted (without retaining benefit) to take the estate below this limit and maximise the RNRB?
It does not take the failure of many of these factors before the nil rate bands have been exhausted and the family is facing an IHT bill which may have been avoidable if a plan were in place to pass on assets in an ordered way over a suitable time period.
If any of the above points stir a warning in your mind then consider a meeting with your professional adviser to discuss your situation and start to put together a plan for you and your family. The potential tax savings can be significant.