Latimer Hinks is urging farmers to be aware of the potentially dangerous Inheritance Tax (IHT) implications of diversifying their businesses. This is a particular issue given the huge increases in land values in recent years.
Faced with lower produce prices and higher costs, many farmers have already chosen to boost their income by diversifying their commercial activities. Many have converted under-used or redundant farm buildings, barns and storage facilities, to provide residential or commercial and business lets, for example. Other projects can range from wind farms, childrens nurseries and small office developments to farm shops, liveries and other equine activity.
Problems can arise due to the fact that any changes to how the land is used can affect the farmers entitlement to Agricultural Property Relief (APR), if agricultural land and buildings are adapted for alternative purposes.
Anne Elliott, Partner and agricultural law specialist at Darlington-based Latimer Hinks, says such changes can prejudice the farmers entitlement to Agricultural Property Relief.
"While APR means owners of agricultural property may qualify for 100% relief from Inheritance Tax (IHT), it comes with conditions, she says.
"One of these is that the land must meet the IHT definition of agricultural property and be occupied for agricultural purposes. Changing its use can affect land owners entitlement to APR.
She added: "There are also important rules regarding not only the occupation but the length of ownership of the property. Farmers and land owners who have decided to change, or are considering changing, the use of their land, should be aware that they can lose APR. If they do so, to mitigate IHT, they must try and ensure that they qualify for the alternative, Business Property Relief (BPR.)
"Diversification can be a huge boost for farmers, but there can be pitfalls when it comes to retaining and ensuring eligibility for APR; or failing APR, for BPR. With the right advice and careful planning, problems and, potentially loss of these immensely valuable reliefs, can be avoided.