Farmers should keep detailed documentation of farming activities to ensure their estates qualify for Agricultural Relief from Inheritance Tax, warns accountant Old Mill.
Speaking at the Royal Cornwall Show this week, associate director Andrew Vickery said many landowners assumed their estates would be eligible for Agricultural Property Relief (APR) from Inheritance Tax (IHT). "However, a series of court cases have highlighted the need for careful planning and documentation. A key feature of cases like Antrobus, McKenna and McCall has been the lack of sufficient documentary evidence of farming activity to support the financial details shown on the related accounts and tax returns. Without this evidence, large parts of the estates became subject to a hefty tax burden."
For example, older partners in a farming partnership who were seeking to reduce their role in day-to-day operations should keep detailed and regular minutes of partnership meetings to substantiate the input they still made to the business. "They do not necessarily need to have a hands-on role, as their experienced management contribution is deemed equally valid," said Mr Vickery. "But without actual evidence of this involvement, HM Revenue & Customs (HMRC) could argue that the older partner is no longer actively farming, and his estate therefore no longer qualifies for APR."
There are numerous other situations where businesses should consider keeping documents in the form of minutes, records or photographs, to support their IHT position. These include:
• Farms which are holding substantial cash deposits on their balance sheet, in anticipation of acquiring land in the future.
• Businesses that have a mix of non-trading and investment assets (such as let properties) but which run all streams of income as one business.
• Farms with substantial amounts of amenity land or woodland in addition to the farmed acreage.
• Businesses with traditional or redundant farm buildings, particularly where planning permission for conversion has been applied for.
"Clearly the above list is not exhaustive but farmers who are unsure whether their entire estate qualifies for APR should take professional advice and keep as many records as possible," said Mr Vickery. "In many cases some cheap and simple early planning could yield tax savings of several hundred thousand pounds. It can also avoid potentially costly and intrusive scrutiny from HMRC if any queries can be answered quickly and supported by robust factual evidence."
