The Barleymows – Gifting of farm property

David: What’s up, Grandad?

George: I was wondering about passing on
more of the farm to you all …

Henry: Eh, why?

They all sit down.

George: I want to protect you from that
bloomin’ Inheritance Tax when I finally pop
me clogs. (Pause) Not that I’m planning to
anytime soon!

Mary (smiling): Well that’s a relief! So, what’s
worrying you?

George: I just don’t want you all to be
burdened with huge tax bills when I’m gone.
I mean, I still own quite a lot of the farm that
was left to me by my parents. And the land that
we bought before you became a partner, son,
is in my name and

David: Hang on Grandad! Ensors told us
we’re all pretty well protected from
Inheritance Tax because the property is
considered to be partnership property and
used in partnership activities. Even the let
cottages and the land with the development
potential look to be covered …

Henry: That’s right, they said not only would
the property pass free of Inheritance Tax,
but it also passes at the value at the date of
your passing for Capital Gains Tax (CGT)
purposes. This means that should we then
sell any of it, we’d only pay CGT on the
increase in value between what we sell
it for and what it’s worth at the time
of your, ahem …demise.

David (smiling): See, nothing to worry about
Grandad!

George (thinking): I know we’re in a pretty good
position right now but let’s face it … this
current government isn’t exactly stable and a
new one might change the policy in years to
come. What would happen then, eh?

Mary: You may well be right George. But no
one can predict what might happen. At the
moment things are OK.

George: Maybe, but it would be a whole lot
easier for you all if you knew when I was likely
to pop off and

David: Stop grandad! Nothing’s going to
happen …

George: Well, I’m not going to live forever … so
why don’t we just look at me passing at least
some of the property over?

Henry: We could, but wouldn’t that just create
another tax liability?

David: You are probably thinking about CGT,
Dad. Ensors explained if property is given away
that, for tax purposes, the person giving it away
is considered to have sold the property for full
value at the time of the gift. Even though no
money has changed hands; this would give
rise to a CGT charge.

Henry: Ah yes – I remember now – but there
was a way around it.

David: Ensors said in certain cases it’s
possible to defer the CGT so no tax is payable
on the gift. I think it’s called Capital Gains Tax
Holdover Relief

George: Defer? For how long?

David: It is actually fully deferred until the
property is sold on.

Mary: That’s good because if you sold, you’d
then have some cash from the sale to pay
the tax!

George (scratching his head): So, if I give some
land to Henry first and he then wants to give it
to David … is tax payable at the time of that
second gift?

David: No – providing the conditions are met
at the time of the second gift, you should be
able to use Holdover Relief on that as well,
providing the rules haven’t changed from
where they are now.

Mary: So, what are the conditions to get this
Holdover relief?

David: For us, the property that is being gifted
must be either used in our farming trade, or
qualify for Agricultural Property Relief. I’m sure
there must be some more detail behind these
requirements that Ensors would be able to help
us with.

George: The farmland and buildings should be
OK then, but what about the farm cottages?

David: The one that has been occupied by old
Ned for years should be fine as it’s housing a
farm worker, so will qualify for Agricultural
Property Relief. I’m not so sure about the two
cottages that are let on Assured Shorthold
Tenancies though. I think they might be a bit
more complicated. We’ll need to take some
advice from Ensors, but I’m sure something
could be done.

Henry: Any disadvantages to all this?

David: There will, of course, be some
professional fees involved in the process. If the
tax rules don’t change between now and when
Grandad passes, then we are probably at a bit
of a disadvantage should we ever sell the
properties that are passed on, although I can’t
see that happening.

This is because if we use CGT Holdover Relief
the property does not pass over for CGT
purposes at the value of the gift but passes
at Grandad’s original cost, or at the value
that he inherited the property at. So the CGT
on an eventual sale would then be that much
higher. It’s only a problem if we ever sell …
which is unlikely.

George: But if you did sell, at least you’d have
received some money to pay the tax. It’s some
protection against IHT should the rules
change, which is what worries me.

David: One last thing to consider, Grandad – if
you give property away for this to be effective
for IHT purposes, you cannot be seen to
continue to benefit from what you’ve given
away. This means we’d probably have to
reduce your profit share in the farm, so that
you’re not then retaining a benefit from land or
other property that you’ve given away …

George (shrugging): That’s the beauty of
having quite a large pot in my Partners
Account in the partnership of undrawn profits
from previous years. I’m sure we can come to
some arrangement where I can draw on that
should it be needed …

Henry: Now you’re talking, Dad! So let’s get
this meeting booked in with Ensors.