As farming business start to plan for the 2023 harvest it is quite typical that the new farming year gives rise to thoughts over succession to the business and passing properties over to the next generation.
Naturally concerns over the taxation impacts of property gifts is a consideration and advice should always be taken to ensure that unexpected tax liabilities do not arise.
Under the current tax regime, there are some clear tax advantages to holding farmland until death and passing to the next generation at that stage. In most cases this transfer will be free of both Inheritance Tax (IHT) and Capital Gains Tax (CGT)with the added advantage that the beneficiaries will inherit the property at the current value so that should it be sold in the future that any CGT would be calculated only on the uplift in value from the date of death.
Despite this, there will be many cases where there is desire to pass on land sooner rather than wait until death and this can be for a number of valid reasons. If this is the case we generally look to apply a tax relief known commonly as “Hold Over Relief” to avoid the need to pay CGT on the value being gifted.
The default position for gifts of property is that the individual making the gift is deemed to have been paid the full market value of the property given away and CGT will be calculated on that basis probably creating a significant CGT liability although no money will have been paid.
Holdover Relief is, in effect, an agreement between the two parties that rather than pay CGT on the gift, that the person receiving the property agrees to pay tax on the Capital Gain that would have been charged to tax on this gift, should they and only if they ever sell or transfer that property on themselves during their lifetime…..although they could themselves give it on again and make a further claim for Holdover Relief at that time should the relief still be available.
Clearly Hold Over Relief is an important tool in allowing farming businesses to be passed on through the generations in a tax efficient manner.