Many farmers undertake planning for Inheritance Tax and Capital Gains Tax to preserve the farm for future generations. However, many do not realise the vital importance of keeping track of their acquisition cost of the land and buildings. This will affect future tax and succession planning.
Many events affect the acquisition cost of the land and buildings, such as improvements, inter spousal transfers, part disposals, death and passing the business to the next generation.
When planning how to preserve the farm for future generations, consideration should be given to both Income Tax and Capital Gains Tax consequences as well as the effect on your estate for Inheritance Tax. Whilst in most cases there will be Business Property Relief and Agricultural Relief available this should be checked with your solicitor or accountant prior to any proposed transfer particularly where there has been diversification resulting in non farming income.
It is essential that adequate records are kept of the acquisition cost and any improvement costs to the land and buildings in case HM Revenue & Customs enquire into the transactions at a later date. These records will be required to claim any holdover relief for Capital Gains Tax, even if Capital Gains Tax is not payable.
Where there are lifetime transfers between family members there is a tendency not to get the land professionally valued. It is always worthwhile to obtain a valuation at the time of the transfer as to obtain a retrospective valuation can be far more time consuming and costly in professional fees. It also ensures an accurate valuation is placed on the land which is less likely to be challenged by HMRC.
Keeping track of the acquisition costs as you embark on each change within the ownership of the farming business, and obtaining the necessary professional valuations of the land and buildings at the time the ownership changes, will reduce the professional costs incurred later on.
• Keep accurate records of the acquisition cost of the land, buildings and farm assets.
• Obtain a professional valuation at the time of any change of ownership.
• Remember Capital Gains Tax will interact with Inheritance Tax.
• Don’t delay: if a family member loses mental capacity before the planning is completed, it may be irretrievably too late.
How can we help?
Hewitsons can advise on what is the correct information to record to ensure that problems do not occur later on and can advise on Capital Gains Tax and Inheritance Tax and on succession planning steps (including your Will and Partnership Agreement).
If you would like advice in the first instance please contact Elaine Morgan on 01604 233233 or click here to email Elaine. For more information please visit our Tax & Trusts page.