Office of Tax Simplification publishes a paper looking at the IHT process.
The Chancellor of the Exchequer, Philip Hammond, has written a letter to the Office of Tax Simplification (OTS) instructing a review of the Inheritance Tax (IHT) system, the OTS has now published a paper looking at that process with major implications for farmers anticipated.
Accountants Saffery Champness say the review has been ‘expected for some time. Whilst any changes are likely to apply to a small percentage of taxpayers at around 5%, clearly those owning land and property are likely to be affected – hence it is of particular relevance to the farming and landed estates sectors’.
It is understood that the OTS’s main aim would be to assess whether rules governing the IHT system need an overhaul. Currently farm businesses can usually claim 100% relief on IHT when agricultural properties are passed down through the family. Agricultural Property Relief is also likely to come under the scope of the review.
Symonds & Sampson partner, Ross Willmington said that the review could see the introduction of ‘changes that would have a major impact on farm businesses. The existing system favours farmers retaining assets until death because they generally know that there is 100% relief on IHT. For farm owners the concern will be that the current 100% relief on handing over farming assets will be tightened and many may have to rethink their succession plans”.
‘However, the government would have to consider whether changes recommended by the review cause distortion of land markets. If you have let agricultural land since 1995, 100% Agricultural Property Relief applies so that IHT should not be payable on the asset if the owner died. To abolish that relief would cause further distortion to the tenanted sector as landowners would be cautious of letting land, for fear of their families facing a possible tax bill. If Agricultural Property Relief was removed we could see a plunge in the number of people letting land and in turn cause a block for new entrants into the farming industry’
The OTS, in its document, says that the overall aim of the review will be to identify opportunities and develop recommendations for simplifying IHT, it is understood that a report will be published this autumn. The current IHT system which has largely been in place since the mid-1980s has become very much a part of the tax planning process, particularly for the rural sector and the make-up of many farm businesses and their structure in terms of tax. This review could have major implications and Symonds & Sampson’s rural team will be following its process closely.