TAXATION

IHT developments

HM Revenue & Customs (HMRC) have been trying to tighten the conditions for claiming the valuable inheritance tax reliefs on agricultural and business property and two recent tribunal decisions have supported their efforts.

Agricultural property
The agricultural property relief case concerned a farmhouse. Normally farmhouses qualify for 100% relief if the occupier is engaged in farming and the house is of a size and nature appropriate for the farming activities. The amount of relief is based on the house’s agricultural value rather than its worth on the open market and it is this point that led to the dispute. Revenue and Customs argued that the open market value of the house in question was greater than its agricultural value and denied inheritance tax relief on the excess. The Lands Tribunal ruled that the agricultural value was only 70% of the open market value.

The decision leaves owners of farmhouses potentially exposed to more inheritance tax than they might expect. However the difference between agricultural and market value can vary and depends on local market conditions and the nature of the house, for example how attractive it is as a non-agricultural property.

Business property relief
Shares in an unlisted company qualify for 100% business property relief if the company carries on a business. However, a business that consists mainly of holding investments does not qualify. The Special Commissioners were asked to decide the status of a company that owned, managed and maintained 241 properties. The maintenance activities were significant and this business might have allowed the company’s shares to qualify for relief. But when the Commissioners analysed the figures, they found that the management and maintenance side of the business made a loss and was totally supported by the investment activity of receiving rents. As a consequence, relief was denied.

Civil partnerships
There is better news for same-sex couples, who now enjoy the same inheritance tax planning opportunities as married couples if they register as a civil partnership. Civil partners can pass assets to their partner free of inheritance tax both during their lifetime and on death. And the less well known exemption for wedding gifts now extends to civil partnerships. Parents can make tax-free gifts of up to £5,000 and there are lesser exemptions for other donors.