Capital Gains Tax advice as part of succession and estate planning

Part of a farm was owned by non-farming client. The rent from the farm was important for the standard of living of the client but had not been changed for some years.

There was to be significant inheritance tax implications on the client’s death due to the non-agricultural nature of some of the assets and the non-involvement of the client in the farming activities.

Problems faced 

The client required the income in order to support their standard of living but was happy to consider passing on parts of the farm to reduce the potential inheritance tax implications and help the next generation. 

Tees’ solution 

By careful investigation of current values, the non-agricultural part of the farm, including the farmhouse, cottages and buildings were ascertained and valued by an agricultural agent.  The client retained some of the farmland and the farm partnership agreed to pay an increase in rent on this farmland to match the rent which had previously been received. The increase in rent represented a current market rent. 

The client was then willing to give up the non-agricultural part of the farm and to assist with the payment of capital gains tax the assets were placed within a discretionary trust and the gain was held over so no tax was actually paid. 

Outcome

Our client’s estate was significantly reduced for inheritance tax purposes and they have now survived the 7 years required.