Case Study – Inheritance Tax Valuation

This entry was posted on Friday, November 4th, 2022 at 5:20 pm

With Inheritance Tax at 40%, it remains as crucial as ever for farmers and landowners to think early about their succession plans. Below is a Case Study showing how early tax planning has saved a farming family a large tax bill.

Stephensons Rural were instructed, on the death of a client, to provide a valuation of the deceased’s estate for Inheritance Tax purposes. We worked closely with the Solicitor and Accountant.

The Deceased’s estate located in North Yorkshire comprised:

• Farmhouse (lived in by the Deceased)
• Let Cottage
• 15 acres of pasture land, let to a 3^rd party, and with development potential
• 175 acres of arable land farmed in-hand.

Once inspected, we provided a detailed RICS Red Book Report as required by HMRC. As is usual, our instructions were to provide the Market Value on the Date of Death together with our assessment of the value that would qualify for Agricultural Property Relief (APR). APR is a 100% relief available to farmers and landowners on agricultural property. The following figures were provided:

This left £540,000 of value subject to Inheritance Tax. Each individual gets a tax-free allowance of £325,000 (which can be increased on qualifying residential property). This can be transferred between spouses if unused. The Deceased’s husband had passed away 2 years ago and, as all assets were transferred to his wife (free from IHT), this left £650,000 of tax-free allowance available for use. As the £540,000 was inside this figure of £650,000, there was no IHT to pay.

However, the Deceased had previously owned a 50% share of her parents’ former farmstead in West Yorkshire which was converted into 3 dwellings all let out on residential agreements. The 50% share was worth £375,000. In 2011, on the advice of Stephensons Rural and the accountant, the deceased’s share in the properties were transferred to her children.

If these properties had remained in the deceased’s estate, the Inheritance Tax due would have been £106,000! Whilst Capital Gains Tax was payable to transfer the 50% share to the children, this was significantly less than £100,000 and as such, early tax planning proved vitally important and ensured the next generation were able to continue the operation of the farm in its entirety.

It goes without saying that each individual’s scenario and farm is totally unique and Inheritance Tax is a complicated subject – the use of a good accountant is invaluable. The starting point should always be understanding the value (and agricultural value) of your assets and do get in touch if you require assistance.

Johnny Cordingley MRICS FAAV

jc@stephenson.co.uk

07792 427232