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Probate and Taxation

Probate and Taxation

Experienced Stags Farm Valuer and Land Agent Andrew Ranson takes a look at the delicate subject of Probate and Capital Taxation in general.

He remarks, “This time of year I am usually busy valuing farms for those considering selling, but also for those who may have lost a family member. Only a fortnight ago, I heard from five farmers’ widows in a week, who have all recently lost their husbands and have been told they need a valuation of their farm. I thought it might be helpful to discuss this in this article.”
 

Firstly, what is probate?

It is the financial and legal procedure of dealing with someone's property, money and possessions (their 'Estate') when they die. Before applying for probate, you must find out if the deceased left a will and whether there is any Inheritance Tax (IHT) due. The will states who the appointed executors are (those charged with dealing with probate and transferring the Estate to the beneficiaries in accordance with the deceased’s wishes). If the person died without a will (intestate) there is a similar process where usually the closest relative applies for the grant of Letters of Administration, rather than Probate.

The grant of probate is when the Probate Registry confirm that these matters have all been dealt with. Most assets and bank accounts will be frozen up until this point. Most farming clients would employ a solicitor and/or an accountant to help apply for probate and they, in turn, would instruct a Valuer to value the Estate. For complicated farming estates, this whole process can take between 6-18 months!

Mr Ranson flags up, “Agents and Valuers are regularly asked to provide a valuation or Market Appraisal and, regularly, the executor may not be clear which they require.”

When it is obvious that there will be no IHT due, say when the deceased left all their estate to their spouse, HMRC is very unlikely to spend time scrutinising an IHT valuation and the solicitor is usually content with just one or two market appraisals.

When it is not so obvious that there will be no IHT due, and there may be complications like Agricultural Property Relief (APR) or Business Property Relief (BPR) to consider, these will require more detail than can be provided in a Market Appraisal and a formal valuation will be required to be undertaken by a Chartered Surveyor. Sadly, families occasionally pay more IHT than they needed to because they thought they were saving money by not getting a formal valuation.

Surveyors and land agents, whilst having experience in dealing with both IHT and CGT (Capital Gains Tax), are not qualified or insured to advise clients on these matters and will always recommend that they take advice from their tax advisor. Having said that, I am now going to elaborate on a few points that I think farmers would regularly be advised on. Do please take bespoke advice and do not rely on these comments:

  • The Rates: The higher rate of CGT for non-residential property is 20% (Residential rate 28%). IHT is 40%.
  • The Annual Allowance for CGT is reducing from £12,300 on the 5th April to £6,000 and then to £3,000 in April 2024.
  • Principal Private Residence Relief gives people 100% relief from CGT on the sale of their main home, however the value of their home very much counts within their estate for IHT.
  • The IHT Nil Rate Band is £325,000. Any unused allowance is passed to the surviving spouse. A new Residence Nil Rate Band has increased the £650,000 to £1m per couple, when leaving their home to their children.
  • Unless the farmhouse is ‘of a Character Appropriate to the Holding’ it is increasingly difficult for most farmhouses in Cornwall to qualify for APR. In most circumstances, when land and farm buildings are occupied in hand, there won’t be IHT to pay, even when their value is greater than just agricultural (APR and BPR usually apply).
  • Holiday Lets qualify as trading assets for Income Tax and CGT, but not IHT and, therefore, no reliefs apply.
  • Leases of land for a solar panels or wind turbine are unlikely to qualify for any IHT relief.
  • A consultation has just been launched (until 9th June) looking at the tax treatment of land used for environmental schemes, Net Biodiversity Gain and nutrient offsetting uses. These uses are not considered agricultural. Applications for these schemes may be held up until it is clarified as qualifying for APR.
  • Within the consultation, they are also considering the impact of restricting 100% APR for tenancies unless they are for at least 8 years.

Stags Farm Agency department comprises a dedicated and experienced team focussing on the sale of farms and land across the South West. Working closely with Stags On Site Sales, Planning and Professional Services departments, we offer the most up to date and informed expert advice tailored to suit your needs. Please contact Andrew Ranson on 01566 774999 or a.ranson@stags.co.uk for bespoke confidential advice.