Inheritance Tax Proposals - Valuations and Advice

This article by Jeremy Moody first appeared in the CAAV e-Briefing of 5th December 2024

As the Inheritance Tax controversy continues, a round of CAAV committees this week and next is reviewing the practical and professional issues and effects of the proposed changes, also to be considered at the Northern Ireland Winter Briefing this Friday. The consequences of the proposals will call on members’ skills for more than farmland, for the very traditional valuation items of machinery, livestock and other goods as well as the assets of modern farming and diversification. Those skills will also be called on in advising farming families in the new circumstances. Casting a forward shadow now for planning, these changes are to be effective for deaths from April 2026, barely sixteen months away but with the legislation not due until next summer. The CAAV is looking at how best to support members for this, starting with webinars likely in the New Year.

It is clear that the Government’s proposals would have a larger effect than it says or has understood. It has been unaware of the scale of farming BPR-only claims as revealed by the CAAV review finding five times as many taxpayers affected as the Government says, and likely to grow with inflation. That review has gained much media and other coverage. Further, it has been HMRC’s formal advice that where full relief is given by BPR the assets can be reported using the annual accounts. These accounts will almost always be on a prudent cost basis, not on the market value required and defined by s.160 of the Inheritance Tax Act, and so understating values, possibly by a large margin in some cases.

That would see more farming value exposed to tax than has been appreciated while SIPPs and other unused pensions funds come into tax from April 2027. While that value might come from operational business assets, the means to pay the greater tax might still come back to a land sale.

HMRC’s Guide to making the IHT400 return states at pages 72 and 73 that for BPR accounts should be used where full relief applies, presumably because it has no tax effect with full relief:

“If you’re deducting Business Relief at 100% from the value of the deceased’s business or interest in a business, there is no need to adjust the value taken from the accounts.”

This is why members, asked to value agricultural land, buildings and dwellings, have had few farming asset valuation instructions for Inheritance Tax. The move to partial relief will require valuations in accordance with s.160, taking precedence over the definitions of market value in conventional valuation standards:

“Except as otherwise provided by this Act, the value at any time of any property shall for the purposes of this Act be the price which the property might reasonably be expected to fetch if sold in the open market at that time; but that price shall not be assumed to be reduced on the ground that the whole property is to be placed on the market at one and the same time.”

This will cover such assets as machinery, livestock, severed crops, stocks and stores. Where a tenancy would continue after death, it may have more than nominal value, possibly a considerable value, even if unassignable. It could also require appraisal of rights and obligations under contracts (including tenancy agreements), shares in a family farming company and diversified activities. These latter areas are very much the territory covered by the CAAV’s Future Skills work before the pandemic, helping prepare members for what are now current concerns and the areas covered in the CAAV publication Reviewing a Business.

That publication considers issues including business structures and finances and concludes with chapters on helping families make decisions over succession and property management. As family businesses can sometimes have only a hazy view of who owns what land, a point for early action can be to record what assets are owned by whom and how each party’s income arises from the business, making a basis for later planning.

The APR and BPR changes would put new emphasis on lifetime gifts of assets. That brings the PET rules with their traps, the challenges of Gifts with Reservation of Benefit (GROBs), possibly the Pre-Owned Assets Tax and, fundamentally, the practical questions of what can be given to whom while still having an income and housing. That last point may see fewer advised spouses use all the ￡1m of full relief than the government suggests, preferring to ensure the living standard of the surviving spouse. Good advice, specific to the client and assessed in the round, will be essential as farming families face a changed future.