The lifetime gift of a farm – proposed changes to the Lifetime Gifting Rules

The Office of Tax Simplification (OTS) recently announced proposed changes to the Inheritance Tax (IHT) lifetime gifting rules. The OTS are looking to reduce the seven-year gifting rule to five years and to simplify the various small allowances for gifts into one.

With a possible change in the government will the generous capital tax reliefs be reduced?

When gifting there is the potential for a failed ‘potential exempt transfer’ (PET). If a PET proves to be chargeable then Agricultural Property Relief (APR) should be available, provided the “occupation for agriculture” is satisfied being either:

Occupied by the transferor for the purposes of agriculture throughout the period of two years prior to the date of transfer: or

Owned by the transferor for the period of seven years prior to the date of transfer and have been occupied throughout that period (by him or another person) for the purposes of agriculture.

There are doubts over whether APR will remain available and therefore the incentive is there for lifetime gifting, with Capital Gains Tax (CGT) being a critical consideration to also make. A gift of the farm is a CGT disposal and a “holdover” election should be made where advantageous and applicable, where the conditions relating to the original farm are:

the farm was owned by the transferee throughout the period beginning with the date of the chargeable transfer and ending with the transferor’s death and not then being subject to a binding contract for sale; and

the farm is agricultural property immediately before the death and has been occupied for agriculture throughout the relevant period. This condition can cause problems for APR and gifting.

Hibberts LLP does not offer tax advice and we work closely with your accountants to ensure your complete needs are considered. For specific advice please get in touch with the agriculture team at Hibberts Solicitors on 01270 624225.