The immediate impact of the Chancellor’s Autumn Budget still continues to be felt, with the protests in London on Tuesday 19 November likely to be the first in the active campaigning against the measures. Many across the country, whether farmers or business-owners, are deeply concerned about the proposals to cap 100% relief for Agricultural Property Relief (‘APR’) and Business Property Relief (‘BPR’) together at £1 million per person.
Of course, the news headlines can never paint the full picture of where the challenges may lie. It is not only the level of the available allowances which could impact the Inheritance Tax position of your business, but also the specific detail of your activities. As many of you will have diversified, especially in recent years, what could this mean for you?
Solar farms
With energy costs in mind, one key trend for business-owners, whether park-owners or farmers, has been to establish a solar farm.
From an Inheritance Tax perspective, the difficulty here for farming businesses is that the land has thereby been taken out of any agricultural use and so, at first glance, would not attract Agricultural Property Relief. There have, in the past, been suggestions that Agricultural Property Relief could still be permitted if there is a dual use, such as perhaps by grazing sheep under the solar panels, but this is far from guaranteed and often open to challenge by the Revenue.
As well, since Agricultural Property Relief, where it applies, only shelters the agricultural value of the land, there is likely to be a large excess of value not covered by this relief.
What about Business Property Relief?
Well, that depends on the exact circumstances in play. If the electricity generated is used to power your park or farm buildings, there is the potential of Business Property Relief being available if the land and income can be considered a trading activity of your business. However, if some or all of the income generated was by a feed-in-tariff, or the land leased to a third party who manages the solar farm, then the Revenue may consider the profit and the land used as an investment activity and, thereby, excluded from the relief.
In worst-case scenarios, not only could this endanger relief on the land used by the solar farms but, depending on how your business is structured and the relative values and returns, potentially also any Business Property Relief on the remainder.
Environmental Land Management scenes
There is a small piece of good news lurking behind the scenes for those businesses which have diversified under one or more of the Environmental Land Management schemes.
The government’s draft Finance Bill 2024 has enshrined its previous proposals to bring land managed under ELMs within Agricultural Property Relief. Naturally, this is subject to certain conditions, including that:
- The death or transfer takes place on or after 6th April 2025
- The land has been agricultural land for at least two years prior to the agreement
- Since then, the land has been managed in accordance with the agreement (even if it has ended)
- The agreement has been in place on or after 6 March 2024
If so, Agricultural Property Relief will apply to the value of the land as if it held a perpetual covenant restricting it to such environmental use only.
Business Property Relief could then still potentially apply to the difference in agricultural and open market value, in the usual way.
Land used under the Woodland Carbon Code and Peatland Code
For those businesses who have already embarked upon validating portions of land under the Woodland Carbon Code or Peatland Code, as part of the government’s strive for Net Zero, there is further good news.
The government has formally recognised that such land, together with the units generated can, in theory, qualify for Business Property Relief.
What does this mean for my business?
With environmental matters coming to the fore for many businesses and the changes to the personal Inheritance Tax-free allowances in the Autumn Budget, it is more important than ever for you to seek advice tailored to your own circumstances.
Proper planning can pay dividends in reducing your likely Inheritance Tax bill in future and ensure as far as possible that you are not unwittingly falling into any of the tax traps out there.
How can Tozers help?
Tozers’s Tax & Succession planning team has been keeping a close eye on all these changes. If you would like us to help consider your position and succession plans, please do not hesitate to get in touch with one of our experts.
