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Dunfarming

Agricultural property enjoys a 100% relief from inheritance tax. That's a good deal for the farmhouse, when most non-farmers find their residence is the main reason they have to worry about IHT. The problem is that you need the relief when you die, and you might have retired by then.

A typical situation came before the Appeal Commissioners recently. A couple had farmed 41 acres for many years, but after they retired, they gave 39 acres to their daughter to carry on the farming business. They carried on living in the farmhouse. When they died, their executors tried to argue that it still qualified for the exemption because it was still a farmhouse, but they lost - you have to look at the house in the context of the agricultural land around it, and it was much too big for a farm of only 2 acres (even if they were actually farming that land).

This is a tricky one for farmers who want to retire - it may be possible to retain some interest in the farmland so the house is still "appropriate to the land", but that may not be what makes sense commercially. You certainly need to consider the IHT effect of giving away or selling your farmland when you retire - it's likely that you suddenly go from having almost no exposure to IHT, to having an estate which is entirely chargeable.