Are “investment buyers”, or perhaps more accurately those buying to shelter capital from inheritance tax (IHT) putting at risk this valuable relief to farmers?
Farmland benefits from agricultural property relief (APR) and business property relief (BPR) and land and buildings that benefit from these reliefs are exempt from IHT up to 100 per cent of their value.
The increased level of investment in agricultural land by non-farmers is also pricing out genuine farmers, who cannot afford commercially justify the high prices that land is making. Average land prices in the UK have risen by around 200% in the last eight to ten years – almost 4% in tha last quarter alone!
Although simply buying farmland does not qualify for IHT, the investment buyers are either farming it on a shared or contract basis or in some cases letting the whole unit under a short term farm business tenancy.
Where so much land is being bought up primarily to shelter capital from what may otherwise be considered somewhat draconian tax rates there is a distinct possibility that the valuable reliefs at present available are modified at the very least, if not abolished altogether. This would mean that farmers would need to consider alternative ways to avoid or provide for IHT if the next generation are not to find themselves having to sell the farm, or so much of the farm as to render the remainder unviable, to pay taxes.
A spokesman for HMRC has dismissed the idea that genuine farmers would be targeted or penalised because of this practice, saying: “Every case depends on specific facts but to qualify for the relief the property must have been dedicated to agriculture for a given period prior to the owner’s death.”
If that is the case and there is no real potential problem for farmers, it is unlikely that HMRC will sit back and allow agricultural property to be used as a tax break for IHT. Those individuals’ estates will undoubtedly be closely scrutinised and there will almost certainly be a knock on effect with all agricultural relief claims receiving more attention.
As an accountant, Nigel Moysey specialises within offering taxation and financial advice to the agricultural sector