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09-05-2013 14:32 PM With almost every Budget delivered by a Chancellor, it is fair to say that the devil is in the detail rather than in the speech itself. The 2013 Budget was no exception. Hidden away in a Press Release issued after the Chancellor sat down was the intention to introduce legislation preventing the claiming of Inheritance Tax Relief on some loans. Whilst initially the approach does not seem unreasonable, a closer reading uncovers that these rules also have the potential to impact on those who have taken out loans to acquire assets that qualify for Business Property Relief and Agricultural Property Relief. For many years, owners of Farms and Landed Estates have looked to secure borrowing against assets which do not qualify for other forms of Inheritance Tax Relief. Classically, borrowing has been kept away from assets such as land that qualifies for Agricultural Property Relief and has been secured against investment assets, such as let property, where no Inheritance Tax Relief is available. It seems that HM Revenue & Customs are now proposing that a loan should only be deductible against the asset it was used to acquire when assessing an individual’s estate liable to Inheritance Tax. This means that if the purpose of taking out the debt was to acquire a block of land, the debt is deducted from the value of that land when calculating the value of a person’s estate, even if the land also benefits from Agricultural Property Relief. This move is likely to have significantly more effect than it would have done a generation ago given the amount of diversification that has taken place on a number of farms. Assuming that this proposal finds its way into legislation when the Finance Act receives Royal Asset, which is likely to be in July, owners of farming businesses would be well advised to revisit any Inheritance Tax planning they have already undertaken. Unlike other transaction based taxes, the liability to Inheritance Tax tends to ebb and flow as personal circumstances change. Therefore, regardless of this most recent proposed amendment to the legislation, it is good practice to regularly review both your Will and Inheritance Tax planning to ensure they are up to date and effective. Continue reading →