It goes without saying that farming is much more than just a job. Entwined with rural communities and connections, it’s a way of life which, particularly for those working on a family farm can be traced back generations.
It’s only natural then, that preserving what has been inherited from parents and grandparents is a key consideration and it’s no secret that some valuable tax reliefs are available to benefit farmers who pass down a family farm.
These tax reliefs greatly reduce the inheritance tax that would otherwise be payable on agricultural land and the farmhouse when the farmer dies and leaves it to their beneficiaries.
Increasingly, however the tax office is challenging these reliefs to extract the maximum inheritance tax from a farmer's estate. One way they challenge this is to assert that the deceased farmer was not actively engaged in the farm business and therefore deny the relief which applies to the farmhouse.
While it may be the case that some farmers pass on some of the roles and responsibilities they once held to children or grandchildren, in reality farmers rarely ‘retire’ – they don’t change who they are.
This isn’t, however always the ‘official’ view and a potential pitfall can lie at the time of registering a death. Apparently, it’s often the case that an assumption is made that because someone is in receipt of their pension they must be retired – therefore the registrar will often write "Farmer (retired)" on the death certificate. The tax office will then see the death certificate and whilst not absolutely critical to a tax relief claim it doesn't help when trying to show that the farmer was actively involved in the farming business before their death.
One of the ways to make sure family farms do not fall foul of this measure is to ensure that the ongoing involvement of an older farmer is documented. Even if physical involvement is reducing, ensure that, for instance the farmer is signing relevant paperwork, attending meetings with the farm accountant (preferably at the farmhouse) or approving farm accounts – all good examples of day to day involvement.
If actual retirement from the farm business is intended, careful planning must be carried out to consider how the tax reliefs will be affected.