Cap Reform - Impact On Iht Reliefs
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19 June 2014
It can be
argued that the current Common Agricultural Policy (CAP) Reform has
impacts on the inheritance tax (IHT) planning. It has been difficult to
succession planning whilst uncertainty over subsidy entitlement is in
background. It is key to understand what the outcome of the new basic
scheme (BPS) will have on the ability to claim IHT reliefs.
Planning for Farmers
to the question of succession planning and being able to pass the farm
the next generation etc, a lot of research has found that the farming
is lacking in ensuring that the basic legal agreements and paperwork
place before they can venture forth into more complicated estate
Examples of this would be that farmers often do not have up-to-date
agreements, that there is no evidence of the land titles being
the correct party on various changes. There is often complete
uncertainty as to
whether the land that is being farmed is actually owned by the
as a partnership property.
The key is to
ensure 100% Business Property Relief (BPR) as opposed to 50% BPR as
the risk of the fact that land made available to the partnership only
50% BPR which is a real problem. It is therefore suggested that the way
for all farms is to embrace the understanding of the latest CAP Reform
ensure that all the legal foundations are in place. It needs to be
who owns what and why it is owned in that way, whilst considering the
efficient way for the farm to be owned. It is important everything ties
maps and permanent files so that the Accounts reflect that
understanding. It is
also deemed imperative to sort out all the legal agreements relating to
farm now that greater understanding of the CAP Reform is evolving.
The New Basic
Rural Payments Agency (RPA), Natural England and the Forestry
Commission have together
published more information on how the CAP will work in a document
introduction to the new CAP schemes in England.” DEFRA and the RPA say
most of the £11.5 billion plus funding under the new CAP will be paid
direct payment schemes to farmers. The new basic payment scheme (BPS)
will include the greening payment and the young farmer payment, will
the single farm payment (SFP).
The Active Farmer
who applies for the BPS will have to pass the “active farmer” test.
an active farmer needs to be able to demonstrate that he or she is
agricultural activity on the land – namely production, rearing or
agricultural products, including harvesting, milking, breeding animals
keeping animals for farming purposes. However, payments should not be
claimants who hold “naturally kept land” which is in a state suitable
grazing or cultivation but who do not carry out on that land the
as defined by Member States.
This is still
being consulted on but it would appear that if over 50% of the
area is naturally kept land and the claimant cannot demonstrate that
or rearing of agricultural products is taking place on the land, then
need to demonstrate that a minimum agricultural activity is being
on the land. At present naturally kept land types are being considered
include fen, marsh, swamp, saltwater, bog, acid grassland and rough low
grassland. There may be a height ceiling added to this definition where
above a certain height are in some way exempt. The minimum activities
include grazing to a minimum stocking density, mowing, weed control,
topping, burning or flailing.
merely graze land with a third party grazier may need to re-address
farming arrangements in light of the new regulations to ensure they
classed as an active farmer.
have to have at least five hectares of eligible land: again, more about
constitutes eligible land will be available soon. Finally, applicants
at least five BPS entitlements. The rules on entitlements are complex,
basically anyone who already has SFP entitlements will see them become
entitlements from1 January 2015 – although their values will change
on what type of land they’re associated with. Just like the SFP, under
farmers will have to meet cross compliance rules to secure their
The BPS Test and
the Link to the IHT
As it is now
official that HMRC are looking closely into the claims for APR and BPR,
active farmer clause in the CAP Reform will be an important guide for
eligibility for IHT reliefs.
importance of the active farmer test for inheritance tax purposes is
with the current scrutiny of APR and BPR claims. It is fair to say that
of the HMRC attacks seem to focus on active involvement by the farmer,
very closely at the activity of the last two or seven years as
What is clear is that anybody undertaking inheritance tax advice or
must also be fully aware of what the extent of the activity is.
scheme will offer annual small scale grants for certain activities such
hedgerow laying, coppicing and gapping up, or stone wall restoration.
details about the new scheme will be available later this year. In 2015
will be able to apply for an agreement which will start on 1 January
However, payments for some woodland capital items will be available
2015. More information about CAP Reform and the discussions which are
place – including the DEFRA consultations – can be found at
and Tax Impact
to grants available for the likes of hedgerow work, coppicing, woodland
will be essential to ensure that the income is correctly treated for
purposes. Income from woodlands can be exempt from income tax but
associated expenses of harvesting the wood that gave rise to that
have to be exempt, ie it is not just the income that has to be added
the tax computation, it is also the related expenditure that is
This can actually result in a tax disadvantage rather than a tax
it is worth trying to sort through what the additional grants will mean
terms of woodland income and commerciality.
has been possible to harvest woodland at a profit, ie the cost of
less than the income receivable, and this will help hugely with arguing
woodland is commercial and qualifies for BPR. However, great care must
by those recording the income expense and those declaring it to HMRC as
how it is treated for income tax purposes ever mindful that woodlands
qualify for three types of inheritance tax reliefs. The start is
relief under s125 and then also BPR and APR. The current rise of the
in value and income terms should not be overlooked by any farming
looking at inheritance tax planning.
About the Author
Supplied by Julie Butler F.C.A.
Butler & Co, Bennett House, The
Dean, Alresford, Hampshire, SO24 9BH.
Tel: 01962 735544. Email;
F.C.A. is the author of Tax Planning for Farm and Land
Professional), Equine Tax Planning
ISBN: 0406966540, and Stanley: Taxation
of Farmers and Landowners (LexisNexis).
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Article Published/Sorted/Amended on Scopulus 2014-08-25 09:03:18 in Tax Articles