With great and historical changes afoot following the triggering of Article 50 which officially started our exit process from the European Union (EU), it’s safe to say that the UK is in a state of uncertainty as we move into the unknown. One thing that is not uncertain however is tax legislation, and key areas of the law have changed which farmers need to be aware of.
During the Spring Budget announcement, Chancellor Philip Hammond introduced significant changes to Inheritance Tax Legislation (IHT), which will be implemented in May this year. The biggest effect felt by farmers and landowners will be the significant cost increase to administering the deceased’s Estate.
To put it in simple terms, following your death, executors need to submit a tax return to HMRC and pay any tax that is due on your Estate (your ‘Estate’ being all of your assets). Up until now, there has been a small cost payable to HMRC for submission but, come May, this cost is set to increase significantly. Not only will there be the cost of valuing your Estate, solicitors and accountant’s fees, but, from May onwards, any Estate with a value greater than £2 million will have to pay a £20,000 fee to HMRC just to submit an IHT return irrespective of whether any death duties are payable. There is a scaled fee system as follows:
|Under £50,000||No Fee||57% of estates|
|£50,000 to £300,000||£300 Fee||27% of estates|
|£300,000 to £500,000||£1,000 Fee||10% of estates|
|£500,000 to £1million||£4,000 Fee||5% of estates|
|£1million to £1.6million||£8,000 Fee||1% estates|
|£1.6million to £2million||£12,000 Fee||0.2% of estates|
|Over £2million||£20,000 Fee||0.4% of estates|
The small print and why it is vital
It is important to note that the fee is payable on the value of your Estate and not the taxable element. For many farmers who will be eligible to claim Agricultural Property Relief (APR) or Business Property Relief (BPR) and therefore not be liable for any IHT, this will mean that they now must pay what is quite a large administration fee just to submit their IHT return.
For example, a 200-acre farm with a farmhouse, cottage and buildings worth £2.2m would previously have had to pay a small fee on submission, and the owner’s Estate would have been able to get 100% relief on the value of the farm using APR. While they still can claim the reliefs, this now means they will have to pay a £20,000 administration charge plus all of the professional fees.
We are urging farmers and other landowners to be aware of this, as it may mean an additional cash burden on their Estate which needs to be considered and reflected in their will. There could be ways to mitigate this by passing on assets before death but it’s paramount to get a realistic valuation completed, especially for Estates valued at approximately £2 million. This could save farmers a significant amount – up to £8,000 – if they fall on the right side of the line.
For more information about the changes to Inheritance Tax and how it may affect you, please contact Robert Thompson on firstname.lastname@example.org or 01665 511980.