Forward planning, communication and good record-keeping are vital for equestrians planning their legacy.
Specialists from law firm Birketts and tax experts from accountancy firm Ellacotts shared tips on navigating the recent changes to inheritance tax for those in the horse world in a webinar on 13 May. All the points they raised are for general information only, and should not be taken as legal advice.
Changes to agricultural property relief (APR) and business property relief (BPR) came into effect on 6 April, restricting the full 100% relief from inheritance tax that would previously have applied to the first £2.5m per person, and 50% relief thereafter.
As in many areas of life, the horse world does not fall neatly into a box – but relief can, and does, apply to those in the equine sector in specific ways.
The specialists, who have experience in the equestrian, bloodstock and rural worlds, explained how they go about approaching individual situations, plus some key take-home messages.
“Broadly speaking, inheritance tax is levied on the value of your estate when you die,” said Daniel Martin, of Ellacotts, adding that this includes “absolutely everything you own”.
He said that generally, everyone has a nil rate band of £325,000 and that everything above that (provided it does not qualify for specific reliefs) is susceptible to inheritance tax at 40%.
“The real question, particularly for our equine clients, is what reliefs are available, and how might you qualify for them?” he said.
Verity Gulliver, also from Ellacotts, said equine businesses will potentially be looking at APR and BPR, depending on their circumstances.
“Quite simply, APR applies to agricultural land and buildings, and BPR applies to qualifying business interests, where conditions are met,” she said.
“In terms of equine businesses, a lot of studs may qualify for APR, whereas other enterprises such as livery yards are more likely to qualify for BPR, but it all depends on how they are operated.
“They need to be operated commercially with a view to profit, and breeding needs to be carried on in a systematic manner with proper record-keeping.
“[For] liveries and other businesses, it depends on the extra services provided – basic grass livery and DIY probably won’t qualify, but as long as the services provided go above and beyond that, there is quite a strong chance of qualifying for BPR.”
She explained that HMRC views different types of livery in different ways, which is why it is important for yards to list what services they provide on invoices.
Mr Martin stressed the importance of people knowing their current situation as a starting point to plan for the future.
Emily O’Donnell, partner at Birketts, agreed, adding: “In terms of estate planning it’s not just about assets, these are your family businesses and your families.”
She added that this may lead to questions around who should control the operation in future, how to achieve fairness between different siblings who may be running different parts – and that there may be family members who are not involved at all.
Ms O’Donnell also said it is very important to ensure all documents are up to date and align with the current situation and future plans – for example, if family businesses have evolved over time. And she encouraged people to ensure their wills are up to date and written partnership agreements are in place.
Abi Rudd, head of equine at Birketts, urged equestrians to have clear records about who owns what – and that any gifts, purchases or arrangements are properly documented.
Other points included encouraging people to get clear on tenancies and commercial leases where appropriate, have contracts in place for liveries and think about their lasting power of attorney.
Ms O’Donnell said: “The main point that underpins successful tax and succession planning is always communication. Talk to your advisors, talk to your family members. I think the more clarity and certainty people have on what is going to happen in the future, the more successful the handover of your equine business will be.”
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