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No Ordinary Field Day: The Future of Farms and Inheritance Tax

With changes to crucial Inheritance Tax (IHT) reliefs due to come into effect next year, it has never been more important for landowners and business owners to take advice on their tax and succession planning.

The government has announced plans to cap the 100% rate of agricultural property relief (APR) and business property relief (BPR) at £1 million, combined, per person. For more details on how these proposed changes will work, see our previous article.

There have always been complicated issues that arise in ensuring that assets will qualify for APR or BPR.  However, having confirmed that the reliefs apply, it has often been unnecessary to think too much further about IHT planning. In many cases the most tax-efficient approach has been to hold onto assets until death.

Once APR and BPR are capped, there will be a lot more to think about. From what we know so far of the government’s plans, there are going to be traps for the unwary as well as opportunities to maximise the value of the reliefs. Those with land and business interests will need to make sure they take expert advice on their IHT planning.

Making the most of the allowances

Since the introduction of the Transferable Nil Rate Band in 2008, it has often been appropriate to leave the whole of one’s estate to one’s spouse or civil partner. However, the government’s announcement of the changes stated that “any unused allowance will not be transferable between spouses and civil partners”.

Assuming that this position is carried forward into the coming legislation, this marks a return to the ‘use it or lose it’ principles of pre-2008. Anyone with significant relievable assets will want to make sure that their Will is structured appropriately. This could mean gifts direct to the next generation, or in some cases trusts will be a useful way to achieve your goals in a tax-efficient way.

Lifetime gifts

The current rules mean that where assets qualify for full IHT relief, it usually makes sense to retain them until death, when they can pass without capital gains tax (CGT). Beneficiaries can inherit the assets with an uplift to their probate value. Since lifetime gifts of relievable assets typically do not save IHT, but either trigger an immediate CGT charge, or else result in the beneficiary taking on a held-over gain, they rarely make sense from a tax perspective.

If the government’s proposals go ahead and APR and BPR are no longer available in full, that will shift the equation. Thought should be given to whether the possible IHT saving of a lifetime gift will justify the CGT consequences.

However, there are other factors to take into account, including whether you can afford to gift assets, bearing in mind that retaining any use of gifted property, or the income it generates, can result in a reservation of benefit and so prevent any IHT savings. If you’re passing on your business or a rental asset, you need to consider whether you have other sources of income to fund your retirement.

Use of Trusts

While trusts may not in reality be the easy IHT saving trick they are often portrayed as, they still have an important role in IHT planning.

For one thing, trusts can help boost how much can be passed on tax free. As well as their own nil rate band, trusts will now also have their own £1 million allowance for 100% APR/BPR (albeit one that will be shared with other trusts created by the same settlor(s) since 30 October 2024). This means that, if set up correctly, a trust will be able to hold up to £1,650,000 without incurring an IHT liability.

Aside from this, trust IHT is still easier to plan for than IHT on death. Under the new rules, the charge will arise on a known date every 10 years at a rate of up to 6% (and in effect up to 3% for APR/BPR property, under the new rules), rather than at a rate of up to 40% whenever the owner dies. Trustees can plan the trust’s and the underlying business’ finances to ensure that the funds necessary to pay the tax will be available at the appropriate date. Importantly, in most cases, the gain on assets settled onto trust should also benefit from hold-over relief. This will have the effect of deferring the realisation of the gain and, ultimately, aiding with the liquidity position for the business.

Conditional Exemption for Heritage Property

A Conditional Exemption (CE) from IHT is provided for certain assets, including:

• Buildings of outstanding historical or architectural interest;
• Land of outstanding scenic, historic or scientific interest; and
• Objects or collections of pre-eminent national, scientific, historic or artistic interest

Where assets are assessed to qualify for CE, the exemption will only be granted on the basis of an undertaking given by the beneficiary to HMRC to preserve the asset and to make it available for public access. When CE has been granted, it is also possible to claim CE on a trust fund set aside for the maintenance of the property.

Where it has been possible to obtain 100% APR or BPR on an estate, there has been no need to consider conditional exemption. However, with larger estates no longer able to qualify for 100% relief, CE will likely become more attractive in many cases.

Helping you find the right solution

If the government’s proposed changes go ahead in their current form, planning is going to become even more complex. Expert advice has never been more necessary. After all, when it comes to tax and succession, a failure to plan is a plan to fail.

Quastels’ Private Wealth and Tax team is able to provide specialist advice on these topics and more. The team has been joined this year by Jack Burroughs TEP, Senior Associate, who was previously the Private Client and Tax Adviser at the CLA (the Country Land and Business Association) where he assisted some of the country’s largest estates with their tax and succession planning. The team are able to provide land and business owners with expert advice, tailored to their particular circumstances and the commercial realities of their business.

To discuss your requirements and find out how we can help you, please get in touch.

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Leasehold and Freehold Reform Act 2024 – January 2025 Update 

Implementation of changes to ownership requirement rules

On 21 November 2024, Matthew Pennycook MP (the Minister for Housing and Planning) confirmed the Government would imminently introduce new regulations to abolish the two-year ownership rule for i) a leaseholder of a flat to extend their lease; and ii) a leaseholder of a house to extend their lease or purchase the freehold.  

It has now been confirmed that these changes will be implemented this Friday, 31 January 2025. 

Up until now, it has been regular practice for sellers of long leasehold properties to apply for a statutory lease extension (in accordance with the Leasehold Reform, Housing and Urban Development Act 1993) and immediately assign the benefit of the claim to the buyer upon completion. This procedure provided a framework for buyers to legitimately circumvent the two-year ownership rule before they could bring their own claim. As of this Friday, these steps will no longer be required. 

Buyers will now be able to make a statutory claim for a new lease as soon as they become the registered proprietor of the leasehold title at HM Land Registry. This point is noteworthy given HM Land Registry continues to experience a significant backlog of applications, resulting in an extended ‘registration gap’ – the period between completion and subsequent registration of the transaction at HM Land Registry.  

Accordingly, buyers will be prevented from exercising these rights immediately upon completion and not until registration of the legal title has been effected at HM Land Registry. This may result in some buyers not wishing to wait, in which case they will have to follow the current practice of the seller giving notice of the claim with the benefit being assigned to them upon completion. 

Conclusion 

Subject to potential delays resulting from the ‘registration gap’, these changes should empower leaseholders to enfranchise at their own convenience and without the potential pressure of having to undertake the exercise at the point of acquisition. 

Whilst the removal of the two-year ownership requirement will be welcomed by both buyers and sellers of leasehold properties, other proposed legislative changes introduced by the Leasehold and Freehold Reform Act 2024 are yet to be implemented. For example, buyers will still be faced with uncertainty as to whether a claim should be pursued under current valuation rules or to await implementation of the new provisions. We await further developments with interest. 

To discuss any of the points raised in this article, please contact Daniel Blake or fill in the form below. 

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Global Talent Visa: Arts Council Endorsements

The Global Talent visa is a prestigious UK immigration route designed for exceptional individuals in arts and culture. Securing an Arts Council England endorsement is a critical requirement for this visa, enabling talented professionals to live and work in the UK. This guide explains the eligibility criteria, the application process, and the importance of professional support to maximise your chances of success.

What is the Global Talent Visa?

The Global Talent visa allows individuals in arts, culture, digital technology, and other fields to work in the UK without employer sponsorship. It is designed for applicants with either a proven international reputation (via the Exceptional Talent route) or clear evidence of high potential (via the Exceptional Promise route).

Arts Council Endorsement Criteria

To apply for the Arts Council endorsement, candidates must demonstrate:

• Professional excellence: A record of outstanding work performed or exhibited internationally.
• Recent activity: Evidence of active participation in their field within the last five years.
• Leadership status: Either a well-established reputation as a leader (Exceptional Talent) or strong potential for leadership (Exceptional Promise).
• The Exceptional Talent route requires applicants to show consistent international acclaim, whereas the Exceptional Promise route is tailored for early-career professionals with evidence of significant promise.

Evidence and Recommendation Letters

Applicants must provide robust evidence of their achievements, including recognition in reputable media, significant awards or nominations, and international exhibitions or performances. In addition, three recommendation letters are required. One must come from a prominent UK-based cultural organisation, while the others may be from recognised institutions or experts abroad. These letters must establish the referees’ credentials, their relationship to the applicant, and why the applicant meets the endorsement criteria.

Application Process for the Arts Council Endorsement

The application involves two stages. First, the applicant submits an endorsement application to Arts Council England, including evidence and recommendation letters. If endorsed, the second stage involves applying for the visa through UK Visas and Immigration. Certain award winners may bypass the endorsement stage altogether.

Why Legal Advice is Crucial for the Global Talent Visa

The endorsement process is highly competitive, and many applications are refused due to insufficient evidence or poorly presented submissions. At this critical stage, instructing Quastels can make a significant difference. Quastels possess extensive experience in handling Global Talent visa applications, including securing Arts Council endorsements. Our team of immigration experts will evaluate whether the Exceptional Talent or Exceptional Promise route is more suitable, assist with compiling strong evidence tailored to Arts Council requirements, and draft compelling recommendation letters. Quastels also offers strategic advice for appeals or reapplications, ensuring a comprehensive and robust submission.

Increase Your Success Rate for the Global Talent Visa

Given the high refusal rates for Arts Council endorsements, professional guidance is vital. Quastels’ expertise ensures that your application is precise, compelling, and aligned with the stringent standards required by Arts Council England. 

For detailed information about the Global Talent visa and the endorsement process, visit the official Arts Council England and UK Government websites. To discuss your application, contact Quastels for expert advice and support.

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