Inheritance Tax and Capital Gains Tax Review

Omagh based accountant Seamus McCaffrey
Omagh based accountant Seamus McCaffrey

The Office of Tax Simplification (OTS) published recommendations on 5 July 2019 with the objective of streamlining the reliefs available to farmers against inheritance Tax (IHT) and Capital Gains Tax (CGT).

Currently, when a farmer during his lifetime transfers agricultural land which is farmed as a farm business there is generally no taxes to be paid at the time of transfer provided reliefs are available and correct HMRC procedures are followed for both IHT and CGT.

With a transfer on death, only IHT has to be considered; transfers on death are exempt from CGT.

The recommendation published last week include the removal of the exemption from CGT for transfers on death. This recommendation has a number of tax and farm business consequences. Firstly, at present, land handed over following a death can be sold by recipient without paying CGT or IHT as they are protected by an uplift to market value for CGT and by agricultural relief for IHT. However, with the recommendation from OTS, the seller has to pay CGT on the uplift in value from original cost. Secondly, the removal of the CGT exemption on death may act as an incentive to farmers to transfer land during their lifetime; perhaps a positive in succession planning.

Another recommendation from OTS is to reduce the seven year qualifying period for IHT to five years and to abolish taper relief for transfers during years one to five.

In relation to CGT, there are many reliefs available to the farmer: Rollover Relief, Investors Relief and Hold Over relief.

The standard rate of CGT is 20 per cent, but, if the farmer is entitled to Enterpreneurs Relief, the effective rate CGT is 10 per cent on gains up to £10 million.

The reliefs available against CGT and IHT are complex and their interaction requires careful planning, detailed consultation with the farm’s accountant and solicitor can ensure that the payment of tax is minimised and succession is facilitated.

For further information, contact (028) 82241515.