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

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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Cryptoassets and UK Tax- FAQs

Cryptoassets and UK Tax- FAQs

UK tax returns are due by the end of January – but do you know whether you need to report your cryptoassets?

31 January is a key date in the UK tax year, as the deadline for submitting a self-assessment tax return.  Hopefully by the time you read this you will be secure in the knowledge that your own return has been submitted, if you are a self-assessment taxpayer.  However, if you have been investing in cryptoassets, are you sure that you have reported everything you need to? Unfortunately, given this is such a new type of asset and the law is still being established, many people are unaware of the tax rules relating to their cryptoasset holdings.

For example, have you ever found yourself thinking along the following lines: 

  • I’ve invested into crypto, and I switch between different tokens from time to time, but until I cash in for fiat currency I don’t have any tax issues to worry about. 
  • I can’t have a UK tax liability on my crypto, because I’m a non-UK domiciliary paying tax on the remittance basis, and only deal with offshore exchanges. 
  • I don’t need to declare tax on my crypto, because HMRC have never asked me to submit a tax return. 

If so, you need to carefully consider your tax position – read on for more details. 

Capital Gains Tax  – Do I have to pay CGT on cryptoassets? 

In the UK, capital gains tax (CGT) is payable on the disposal of any asset.  In a straightforward case, this would be when you sell something for cash.  For example, if you purchased a Bitcoin in 2010 for £10,000, and you’re selling it now for £80,000, then you would have made a capital gain of £70,000, less any deductible costs. 

Do I have to pay tax if I swap one crypto token for another? 

However, the concept of a disposal goes far beyond a cash sale.  For one thing, it includes an exchange of one asset for another, even where one cryptoasset token is swapped for another.  Therefore, if instead of selling your Bitcoin for cash you had exchanged it for 30 ETH, you have still made a disposal, and so could be liable for CGT on the difference between the price you paid for the Bitcoin, and the market value of the ETH received in exchange. 

Do I have to pay tax if I gift or spend a crypto token? 

More broadly, you will be making a disposal whenever you give up your ownership of a token.  For example, if you make a gift to somebody, or spend it, such as to purchase an NFT or to pay for other goods or services.  Each of these scenarios can be subject to CGT. 

Do I have to pay tax on mining or staking? 

If you are receiving tokens through mining on a proof of work blockchain, or staking on a proof of stake blockchain, then you need to consider whether this is subject to income tax. 

The law on this issue is currently not certain, but HMRC’s view is that generally income from mining or staking will be subject to income tax, after deduction of certain allowable expenses. We can provide advice on this topic.

Remittance basis taxpayers – are crypto gains and income subject to UK tax? 

As a remittance basis taxpayer, you do not have to pay UK tax on relevant foreign income, or foreign chargeable gains if such income or gains are not remitted (or brought back) to the UK.  However, can a decentralised cryptoasset recorded on a global blockchain be said to be ‘foreign’? 

Again, the law has not yet fully clarified this point.  However, you need to be aware that HMRC has taken a very wide interpretation of the law, based on the residence of the beneficial owner. HMRC’s position means that remittance basis taxpayers are unlikely to escape UK tax on their cryptoasset income and gains, even where tokens are held for them by a foreign exchange or via a wallet held outside the UK. 

If you find yourself in this position, you need to take legal/tax advice, as the position is likely to turn on the precise factual arrangements, as well as the interpretation of the law.  

What to do about your cryptoasset taxes 

If you find yourself having made cryptoasset disposals, then you need to consider your potential CGT or income tax liability and whether this needs to be reported to HMRC.  CGT and income tax are both self-assessment taxes, which means that it is your responsibility to ensure you have reported anything you need to report, whether or not HMRC have already asked you to submit a tax return. 

The calculations are not straightforward.  For one thing, there will be various deductible costs, to reduce your tax liability.  For another, fungible cryptoasset tokens are subject to the share pooling rules, meaning that it is necessary to work out an average cost based on all of your purchases. 

Specialist software is available, which can help with these calculations.  However, you need to understand the legal interpretation of transactions in order to ensure that the software is analysing your tax liability correctly. 

How Quastels can help with cryptoasset taxes 

Ben Rosen, Partner, and Jack Burroughs, Senior Associate, in the Private Wealth and Tax team are leading experts on the legal and tax treatment of cryptoassets.  We can therefore advise you on the issues that might arise in calculating your taxes, including: 

  • which transactions are disposals for CGT; 
  • how staking and mining income is calculated; and 
  • whether gains and income are located in the UK or abroad. 

We can provide the analysis of your cryptoasset gains and income needed to submit your tax return, and state your legal position to HMRC where the law is unclear or where mistakes may have been made. We are also able to assist with your estate planning for cryptoassets, helping to ensure that your tokens can pass to those you want to receive them, as tax-efficiently as possible. 

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

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The Final Straw? – Key Changes to Agricultural and Business Property Relief (APR and BPR) and What They Mean for the Future of Farms

The Final Straw? – Key Changes to Agricultural and Business Property Relief (APR and BPR) and What They Mean for the Future of Farms

Tractors descending on Whitehall, Jeremy Clarkson up in arms and landowners across the country fearing for the future of farming. So, what’s it all about?

Here’s what we think farmers, landowners and business owners need to know about the substantial changes to Agricultural Property Relief (APR) and Business Property Relief (BPR), set to take effect from 6 April 2026.

WHAT ARE APR AND BPR?

APR and BPR are reliefs that reduce inheritance tax (IHT) on agricultural and business assets, intended to ensure that family farms can remain operational following a change of ownership. IHT is charged on transfers of value (e.g property, savings and personal belongings) at a standard rate of 40%.

  • APR historically provided 100% or 50% relief on agricultural property, such as farmland or certain farm buildings, to reduce IHT on estates.
  • BPR offered similar relief for business property, such as shares in a family trading business, reducing IHT on assets outside agricultural property.

WHAT IS CHANGING FROM 6 APRIL 2026?

£1 million relief cap

Following the Government’s Autumn Budget, the proposal is that only £1 million of an estate’s agricultural and business property will now qualify for 100% relief from IHT. If an estate consists of both agricultural and business assets, the £1 million cap will be divided between the two based on their value.

The Government have stated that this is expected to affect the “wealthiest 500 estates,” however the uproar from the farming community goes some way to suggest the widespread impact this cap will have. It remains to be seen if the clamour in Westminster will be enough to prevent this change.

Let’s consider an example:

A farmer owns an estate worth £8 million which contains a farm worth £6 million and a business worth £2 million. On the farmer’s death, the estate would be subject to the £1 million 100% relief as follows (for illustrative purposes, we are assuming that there is no available nil rate band):

    • £750,000 relief for the farm (75% of £1 million).
    • £250,000 relief for the business (25% of £1 million).

The remaining £7 million of the estate will be subject to reduced relief (see below).

50% relief beyond the £1 million cap

Once the £1 million cap is exceeded, assets will qualify for 50% relief from IHT. Assets currently receiving 50% relief will not use up or be affected by the new allowance, but any unused allowance will not be transferable between spouses and civil partners. Put simply, this results in an effective IHT rate of 20% on the value of APR qualifying assets exceeding the £1 million cap.

Using the example above, the remaining £7 million on our farmer’s estate would receive 50% relief, leaving £3.50 million taxable value, or framed differently, a 20% tax on the £7 million excess.

The inheritance tax that will be owed on the estate would be £1.4 million.

This tax can also be paid interest-free, in instalments, over a 10 period, which may help ease the financial burden farmers will now face.

Lifetime transfers and trusts 

From 30 October 2024, these new caps and reliefs will also apply to lifetime transfers made within the seven years before death, if the donor dies on or after 6 April 2026. Similarly, trusts will receive 50% relief on  ten-year IHT charges and any smaller charges when property exits the trust. This may mean that farmers could transfer large parts of their estate into a “discretionary” or “interest in possession” trust now without an IHT liability arising immediately, although relevant property charges will likely arise for the trustees.. The Government will publish a consultation in early 2025 on the detailed application of charges on property within trusts.

This means that if our farmer made a lifetime gift of his £6 million farm to his children today and then died two years after making the gift, the transfer would be charged to IHT, subject to the new reliefs set out above. However, if our farmer made the gift today and died on 6 April 2032 (i.e. over seven years since making the gift) there would be no IHT liability for his children.

Changes to BPR

BPR will now apply at 50% instead of 100% for shares in businesses not listed on “recognised stock exchanges,” such as AIM (Alternative Investment Market) shares.

WHAT DOES THIS MEAN FOR THE FUTURE OF FARMING?

For farmers and business owners, these changes to APR and BPR are certainly unwelcome. There is a divide between the farming community and the Government, with farmers arguing that the high capital value of their estates is disproportionate to the low income that they generate. Their major concern is that the Government’s reduction of APR and BPR will result in land being sold piecemeal to meet the new IHT liability. This, in turn, could lead to estates becoming unviable and farmers having to sell up altogether.

It is more crucial than ever to seek advice on wealth protection and planning opportunities as early as possible. With an understanding of what an estate consists of, there are measures, such as lifetime gifts or the formation of trusts, which could help lessen the burden that these changes will bring.

Please do contact the Private Wealth & Tax team to understand the implications for you and/or your clients.

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