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24th July 2013

Some help for Farmers with debts secured on residential property

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The 2013 Finance Act introduced an Inheritance tax problem for farmers (and other business owners), but the Government has now promised some limited relief.

Previously, if a farmer borrowed money for business purposes but secured it against a residential property, the Inheritance tax relief on the agricultural/business property was unaffected but the value of the residential property (and the tax bill on death) was reduced. Sound common sense therefore to structure the loan in that way. The Finance Act, however, introduced new rules so that the debt would be ignored for inheritance tax so that the full value of the property would be taxed on death. The reasoning was that it would prevent farmers and businessmen from manipulating the debt to obtain a tax advantage. However, many such loans are already in existence and would be affected.

The Government has now promised an amendment so that this new rule will only hit loans taken out after 5th April 2013. Any refinancing to try to take advantage of this start date will however still be caught. Those with such loans will need to consider carefully whether, if they have the choice, those loans should remain and more recent (non-qualifying) loans should be repaid in priority.

For further information, contact Emma Satterly on 01223 451166 or click here to email Emma.