The UK’s Inheritance Tax (IHT) landscape has seen significant changes following an announcement in the Spring Budget 2023.
The legislative amendments pertain to the geographical scope of agricultural property relief and woodlands relief.
As such, the alterations could affect you if you own or have owned land or woodlands outside the UK, particularly in the European Economic Area (EEA), the Isle of Man, or the Channel Islands.
This article will explain these changes, their policy objectives, and their impact on your property portfolio.
Agricultural property relief
Previously, agricultural property relief was available for property located not only in the UK but also in the EEA, the Isle of Man, and the Channel Islands.
However, the new legislation restricts this relief to agricultural property located only within the UK.
The agricultural property must have been owned and used for agricultural purposes for a specified duration – 2 years if occupied by the owner or 7 years by someone else – to be eligible for relief.
The relief may be due at 100 per cent under specific conditions, such as the land being farmed by the owner, or at a reduced rate of 50 per cent in other circumstances.
Like agricultural property relief, woodlands relief used to be available for woodlands located in the EEA, Isle of Man, and the Channel Islands.
This relief allows for the exclusion of the value of trees or underwood, but not the land itself, from the individual’s estate.
Again, with the new legislation, this relief now only applies to woodlands within the UK.
The changes have been enacted primarily to align the legislation with the UK’s status post-Brexit. The original expansion of the relief to properties in the EEA was undertaken to ensure compatibility with EU law. However, since the UK is no longer a part of the EU, this measure reverses the expansion.
The change also reverses the inclusion of the Isle of Man and Channel Islands.
This standardisation removes what has been seen as anachronistic treatment under earlier legislation.
Who will be affected?
This change will predominantly affect a small number of individuals or estates of deceased individuals who own land or woodlands outside the UK, specifically in the EEA, Isle of Man, or Channel Islands.
Trusts that hold such properties are also likely to be affected.
If you are one of these individuals, please get in touch with one of our experts to discuss this issue.
Certain businesses – primarily investment businesses – that hold farmland or woodland in the restricted regions may also experience some changes, as they don’t qualify for business property relief.
What does this mean for you?
While these changes are aimed at aligning the legislation with the UK’s current geopolitical status, they do narrow the scope of available reliefs for UK citizens who own agricultural property or woodlands outside the UK.
Though it impacts a limited number of people, for those it does affect, the implications could be significant, meaning that a review of estate planning strategies is urgently needed.
Therefore, individuals and trustees with such properties should consult professional advisers to assess the potential ramifications.