inheritance tax due on sale of part of farm


inheritance tax due on sale of part of farm

Postby mwgf on Wed Apr 13, 2011 5:32 pm

Hi,
My Uncle is a farmer and widower. He has lived on worked on his farm for all his life. He's currently writing his will and wants to split what he leaves between his three children. He wants one of his daughters to inherit part of the farm (the house and approximately 1/4 of the land - worth roughly 400K gbp) and wants the rest of the land, a cottage and some farm buildings possibly suitable for conversion (roughly worth 700K gbp) to be sold after he dies and the proceeds split between his other two daughters both of whom now live abroad but are planning to return to the uk at some point. We were wondering what the inheritance tax implications of this arrangement would be? He has his own 325K allowance and the allowance from his wife who was a partner in the farm business and left all her assets to him. Will the part that continues to be used for farming be excluded from IHT because of farm relief? Will the remaining 700K be subject to IHT at 40%?
Any insight would be much appreciated,
Thank you,
Matt
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Re: inheritance tax due on sale of part of farm

Postby AvocadoK on Wed Apr 13, 2011 6:58 pm

Hi Matt

Agricultural property relief should be due on the land, buildings and cottages if these are used for agricultural purposes at the time of death, and have been so used for the previous two years. To the extent that there is any development value, this would be covered by business property relief, assuming he is farming the land. These reliefs should exempt all of the assets from IHT. The farmhouse may not be fully covered by agricultural relief - it depends on whether its 'agricultural value' is less than its 'market value' the ag value being what it would fetch if it were subject to an agricultural covenant. But if some of the farmhouse is taxable, you still have the two nil rate bands to hopefully cover any taxable value.

It does not matter (as far as IHT is concerned) what happens to the farm after your uncle has died. The IHT is just based on the position at the time of death.

Regards

AK
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