Who’s more likely to be affected
This measure impacts people and the estates of deceased people and their private representatives the place the person owns or owned land and/or woodlands positioned exterior the UK (UK) in both the European Financial Space (EEA), the Isle of Man, or the Channel Islands. It’s going to additionally have an effect on trustees of trusts.
Normal description of the measure
This measure restricts the scope of agricultural property aid and woodlands aid to property positioned within the UK solely.
Coverage goal
To make sure compatibility with EU legislation, motion was taken in Finance Act 2009 to develop the scope of agricultural property aid and woodlands aid to property positioned within the EEA. Now the UK has left the EU this measure reverses these adjustments in order that property positioned within the EEA will once more be handled the identical as property positioned in the remainder of the world.
This measure additionally reverses the growth of the scope of agricultural property aid to property within the Channel Islands and the Isle of Man from the Nineteen Seventies. This growth occurred as a part of adjustments which deemed these transferring from the UK to the Channel Islands and Isle of Man as being domiciled within the UK and so throughout the scope for Inheritance Tax ( IHT ) on their UK and non-UK belongings. Nonetheless, these deemed domicile provisions have been subsequently eliminated, inserting these transferring from the UK to the Channel Islands and Isle of Man in the identical place as others. This variation to agricultural property aid removes the anachronistic remedy and ensures that the aid is aligned in geographical scope with woodlands aid.
Background to the measure
This measure was introduced at Spring Finances 2023.
Agricultural property aid is a aid from IHT accessible on the agricultural worth of land and different property that’s owned and occupied for the needs of agriculture. This may normally be land or pasture that’s used to develop crops or to rear animals.
The aid shall be due at 100% if the one that owned the land farmed it themselves, the land was utilized by another person on a short-term grazing licence or it was let on a tenancy that started on or after 1 September 1995. Property that was owned earlier than 10 March 1981 may qualify for 100% aid if sure circumstances are met. In some other case, the aid due shall be at a decrease fee of fifty%.
The property will need to have been owned and occupied for agricultural functions instantly earlier than its switch for: 2 years if occupied by the proprietor, an organization managed by them, or their partner or civil associate; or 7 years if occupied by another person, akin to a tenant farmer
Woodlands aid is a aid from IHT accessible on the switch of woodlands on dying. It’s only accessible if all of the circumstances for the aid are glad.
These answerable for IHT might elect to exclude the worth of the bushes or underwood (however not the land itself) from a person’s property, offered that, if they’d bought it, the person had owned the woodlands for five years.
Woodland is any land on which bushes or underwood are rising so might embrace wooded parkland, strips of land with bushes lining roads, or tree belts. The place the timber is subsequently offered, IHT shall be due on the proceeds acquired on the sale of the timber.
Detailed proposal
The measure may have impact on and after 6 April 2024 in relation to transfers of worth, different events on which tax falls to be charged or different occasions in respect of which extra tax falls due underneath the Inheritance Tax Act 1984 ( IHTA ).
Present legislation
Present legislation is contained in Half I ‘Normal’ of the IHTA part 16(1); and Half V of the IHTA at Chapter II ‘Agricultural Property’, part 115(5)(a), part 115(5)(b), and part 116(8), and Chapter III ‘Woodlands’, part 125(1A).
Proposed revisions
Part 16(1) of the IHTA shall be amended to take away reference to ‘the Channel Islands or the Isle of Man’.
Part 115(5) of the IHTA shall be amended to take away reference to ‘the Channel Islands or the Isle of Man’ and ‘an EEA state’ in order that Half V Chapter II of the IHTA applies to agricultural property solely whether it is in the UK.
Part 116(8) shall be omitted.
Part 125 of the IHTA shall be amended to take away reference to ‘an EEA state’ in order that the part applies provided that the land is in the UK.
Abstract of impacts
Exchequer affect (£ million)
2023 to 2024 2024 to 2025 2025 to 2026 2026 to 2027 2027 to 2028 2028 to 2029 empty empty empty empty empty empty
The ultimate costing shall be topic to scrutiny by the Workplace for Finances Accountability ( OBR ), and shall be set out on the subsequent fiscal occasion.
Financial affect
This measure shall be formally assessed as soon as costings have been licensed by the OBR , however isn’t anticipated to have important macroeconomic impacts.
Impression on people, households and households
The measure isn’t anticipated to affect on household formation, stability or breakdown.
The primary affect shall be on the very small variety of people and the estates of deceased people who personal agricultural land and/or woodlands positioned exterior the UK within the EEA, Isle of Man or Channel Islands.
This measure is anticipated total to haven’t any affect on people’ expertise of coping with HMRC because it doesn’t change any processes or tax administration obligations.
Equalities impacts
HMRC collects knowledge concerning the age, intercourse and marital standing of the deceased. The affect of this measure on teams with protected traits is anticipated to be proportionate with the inhabitants of the estates of the deceased and trustees claiming agricultural property aid and/or woodlands aid and paying IHT every year.
Impression on enterprise together with civil society organisations
This measure may have a minimal affect on companies as most companies will qualify for enterprise property aid. Enterprise property aid reduces the worth of a qualifying enterprise or its belongings when figuring out how a lot IHT needs to be paid. This measure is more likely to solely have an effect on a really small variety of estates per 12 months.
There could also be an affect on any companies that are primarily funding companies that maintain farmland or woodland within the EEA, Isle of Man or Channel Islands as they don’t qualify for enterprise property aid.
This measure is anticipated to have a negligible affect on advisers and related companies as they might want to familiarise themselves with the change. Buyer expertise of advisers is anticipated to stay the identical as this measure doesn’t alter how advisers work together with HMRC.
This measure isn’t anticipated to affect civil society organisations.
Operational affect (£ million) (HMRC or different)
HMRC is not going to incur any prices implementing this variation.
Different impacts
Different impacts have been thought-about and none have been recognized.
Monitoring and analysis
This measure shall be saved underneath overview via communications with affected taxpayer teams.
Additional recommendation
When you have any questions on this variation, please contact the Inheritance Tax Coverage Group by electronic mail: assetsresidencepolicy@hmrc.gov.uk.
