Capital Taxes on Farms & Estates - An Accountants' Toolkit & Latest IHT Changes

Introduction

This 6-hour virtual classroom seminar (split across two sessions) will look in depth at the impact of the two major capital taxes, Inheritance Tax (IHT) and Capital Gains Tax (CGT), on farmers and landowners. Consideration will be given to the impact of farming for the environment. There has been a farming revolution post 30 October 2024 and 50% APR and BPR from April 2026 after £2.5million allowance of the testator plus spouse £2.5million. Lifetime planning had taken focus with use of the £1million at 100% APR/BPR as a revolutionary amount. Heritage property and Woodland Relief have also come back into focus with the reduction in APR/BPR. The surviving spouse relief must be incorporated into tax planning as it can be so beneficial.

The session will not only look at the legislation but will also examine the relevant case law and consider HMRC’s current approach to collecting tax from the farming industry, for example the recent cases of Tanner and Butler on “holding investments” s.105(3) IHTA 1984 show the importance of the trading activity.

There will be a focus on the current HMRC target areas of tax collection, including property income versus trading income, occupation and amenity value. The need for quality accounts and working papers together with forensic understanding of “occupation and ownership” tied into the farm business has never been more important. The forensic analysis of the farming activity by accountants that is needed for succession planning at every level is critical. Indeed, quality accounts and disclosure are needed at every area of succession planning for minimising capital taxes.

What You Will Learn

This live and interactive session will cover the following:

• How IHT and CGT impact on farmers and landowners and how the farming industry has focused on the 50% APR/BPR crisis and some “U-turns” and the potential IHT liabilities
• Spring Budget 2024 - extending APR for ELMs and removal of the tax advantages of furnished holiday accommodation (FHA) from April 2025
• How to identify with a forensic approach and tackle the relevant issues through understanding the business and accounts working papers
• The importance of farm property valuations for the IHT liability calculations and all tax planning and consideration of when to include current values in the accounts
• Vigne v HMRC [2018] UKUT 357 (TCC) and enhanced livery together with farming for the environment - total rethink over farm diversification disclosure and enterprise accounts are needed for all diversified farms
• Tanner and Graham, as they interact with the change in tax advantage of furnished holiday accommodation (FHA) and the power of lavish services but a total overhaul to the “hotel”/trade is the way forward as part of the whole tourist offering
• The importance of BPR, Rollover and BADR for areas of farm development potential. How is potential development land shown - Stolkin
• The planting of trees and the small development opportunity - correct accountancy treatment on who pays for the planting and how this is shown in the accounts
• The farm revolution - lifetime gifting together with an update to all Wills, Partnership Agreements and succession planning together with IHT and CGT calculation showing lifetime transfers clearly
• How the accountancy and tax profession need good agricultural lawyers for understanding farm ownership for capital taxes protection and therefore correct accounts - some accounts are wrong as regards ownership
• How agricultural lawyers need strong farm accounts and associated tax planning to understand the significance of the nuances and treatment. Maximum disclosure for understanding
• Using the ‘Land Capital’ Account - the importance for understanding the use in the accounts and partnership agreement
• Development land - compulsory purchase (CPO), understanding tax treatment and loss of hope value - the need to identify the make-up of CPO payments between land and income compensation
• Awaiting the results of the farming for the environment working party - what to do in the gap for BPR - disclose as trading where it can be justified
• 'Slice of the Action' schemes - CGT protection and Overage - capital taxes protection and accounts disclosure of future development land
• Succession planning helps set out what the family needs in the new tax environment and ever evolving farming changes - needs good accounts to be able to fully understand the business and the tax interactions of succession planning
• The importance of the updated Partnership Agreement and the Wills, especially in the context of the Trust Registration Service (TRS) and 100% BPR on the first £2.5million and transferable with the spouse
• The need to work with other professionals to improve the client's tax position ensuring that binding legal agreements are in place for capital taxes protection and strong valuations - consideration around AOC (Agricultural Occupancy Condition) and subsequent disclosure. Note to the accounts re values Is needed
• The importance of accounts working papers and tax return disclosure in respect of understanding of all the changes and Will drafting
• How is the farm owned? - Identification of partnership property Ham v Bell [2016] EWHC 1791 (Ch) - farm accounts can be wrong and need rectification - better to rectify now than as part of probate
• Lifetime gifts to solve the problem - reviewing all lifetime transfers before the £2.5million, meticulous planning of IHT v CGT plus future tax liabilities - again correct accounts showing gifts and new ownership
• The risk of Gifts with Reservation of Benefit (GROB) on all the lifetime transfer (new case of Chugtai)
• Buying and selling a farm (also incorporates Capital Allowances) - need accounts with clear components being sold and correct allocation
• Restructure the trade to achieve 100% BPR rather than “push over the investment line” - good understanding and recording of the operation correctly to show a trade
• IHT enquiries and how to avoid them - full disclosure on the IHT400 with strong valuation working all tied into the accounts with full reconciliation
• Woodlands Relief and heritage property revival - following 50% APR/BPR tied into general woodland tax planning - accounts disclosure of woodlands and heritage property
• Review of Tanner, Kingsworthy Meadow Fisheries, Vigne, Butler and Firth in terms of diversification restructure to achieve BPR at 100% s.105(3) IHTA 1984
• James v James [2018] EWHC 43 (Ch) importance of strong Will file and strong attendance and tax planning notes. Hall re provision of IHT liabilities in the Will - need to understand future IHT liabilities
• Larke v Nugus [2000] - the problems of incorrect DIY Wills - Williams, Abrahams - Will drafters must see Accounts
• Protecting capital taxes around the rise of dispute cases - Ham, Davies, James, Gee, Horsford, and Guest (Supreme Court)
• Total focus on accounting for tenancies - dilapidations, improvements and new barns, especially on cessation - compensation on dilapidations
• Farming for the environment - still awaiting the results of the working party, importance of accounts disclosure - accounting policies disclosure in the interim
• Every set of farm accounts “can highlight capital taxes concerns” by definition and the accountant and tax advisers must be prepared to read the important signals within the Accounts for tax planning problems and positives and work together on successful succession planning
• The Lane case and partnership understanding explanation on cessation and inclusion in the Will of the basis of the share of the partnership
• The surviving spouse relief and transferable allowance of £2.5million put a greater emphasis on the role of the spouse as opposed to cohabitee and this relationship must be clearly shown in the accounts

Recording of live sessions: Soon after the Learn Live session has taken place you will be able to go back and access the recording - should you wish to revisit the material discussed.