Taxman watches rural investments

Accountants have been warned that Inland Revenue officials are to closely investigate those who buy farmhouses and agricultural land as a means of avoiding inheritance tax (IHT).                  

Property and farmland can qualify for total exemption from death taxes.  In some parts of the UK this has increased the price of farmland where demand is high and often changes hands before coming to the market.

Inheritance Tax exemptions for agriculture were introduced to prevent farms being broken up on the death of a parent, allowing them to pass to the next generation.  However, HMRC need to be convinced that the property or land has been specifically used for agricultural purposes before qualifying for IHT.  A spokesman from HMRC insisted claims would be carefully scrutinised saying;

‘Every case depends on the 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’.

According to Frank Knight property group, the average price of an acre of farmland has increased by 11,000% over the past 60 years reaching an average of £6,295 per acre.

Part of the reason for the increase is that in the current economic climate farmland is seen as a ‘finite commodity’ and more stable than other assets. 

Agricultural land can be sold free from IHT two years after death, provided that the owners have farmed it themselves or used contractors to farm it for them.  If the owners rent their land to tenant farmers, they can still qualify for IHT relief but the land must have survived for seven years after letting it out or full IHT is payable. 

Andy Cross of Arcus said:

‘Farmers and potential investors need to be aware of the specific qualifications for IHT relief so they can make the most of their entitlement and protect their assets for future generations.’

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