Impact of IHT changes for tenant farmers

Following on from Sam’s article, this article considers the impact of the new rules on tenant farmers, a sector close to my heart being tenant farmers at home. Inheritance tax is not just a tax for those owning land, it also impacts tenant farmers and farmers who are very heavily borrowed on land purchases.

Business property relief (BPR) was capped as well as agricultural property relief (APR), meaning that whether it is agricultural land or property, or assets within your business, they are within the £1M APR/BPR limit per person.

Many may not deem themselves particularly wealthy but when you value all the following assets at open market value, you soon exceed £1M, before considering the value of property or the tenancy, even if they are net of debt or hire purchase agreements etc.

• All herds/flocks and youngstock (regardless of herd basis status for income tax purposes)

• Arable stocks in store such as barley or wheat
• Feed, fertiliser, straw and fuel in stock

• Crops in the ground

• Tractors, trailers, implements, milking parlours and solar panels etc.

• Sheds, slurry or silage improvements that may be paid under the tenancy as tenants’ compensation

• The value of the tenancies held, especially if there are succession rights

• Genus shares
• Arla capital accounts
• Grain store investments

• Even if earmarked for potential future purchases or investments

• Rental property
• Investments or savings
• Pensions from April 2027

So, what should you do? Well, try not to panic.

For many, there will be several family members within the partnership so this potential liability may be shared, but it is certainly worth understanding - especially if you have tried to add to your farming enterprise with improvements, a rental property or a few acres.

We do not have the draft legislation yet but there is still the option of gifting assets between the family during lifetime, potentially tax free. Perhaps it is also a good time to speak to a specialist tenancy succession adviser, to consider the succession in lifetime which may remove what could currently be substantial value in investments in slurry or silage infrastructure.

Consider the value of the stocks you hold together with other assets and speak with your accountant to understand the impact of the proposed measures and the options available. However, tax should not always be the driver and you should make decisions based on what is right for you, the business and your family. Tax planning areas we are currently discussing with our clients are:

• Making gifts in lifetime
• bringing others into the business (new partners)
• incorporating the business
• use of trusts
• or just go out and enjoy your savings!

When you read this, I should be out of the business to welcome our second child into the world. I will be returning for May but my colleagues will be more than happy to assist in the meantime.