Inheritance Tax Reliefs
Discover the different types of Inheritance Tax reliefs
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Main types of Inheritance Tax reliefs
There are some assets that can be passed on to heirs without having to pay Inheritance Tax or that can be paid with a reduced rate.
These Inheritance Tax reliefs can be claimed by the executor or administrator when they are calculating the estate’s worth.
The following are the main types of Inheritance Tax reliefs:
- Business Relief. A business and its assets may be free of Inheritance Tax or pay a reduced rate
- Agricultural Relief. Some agricultural property may be free of Inheritance Tax
- Woodland Relief. Inheritance Tax is only paid when the woodland heir sells or gives away the trees as timber
Other types of Inheritance Tax reliefs
- Heritage assets: Certain properties or works of art that have historic or scientific interest are exempt from Inheritance Tax and must be available for public visitation, as well as meeting other tax exemption conditions. There is also the possibility for heritage assets to be transferred to the Crown in order to pay.
- Inheritance Tax exemptions for death in service: No Inheritance Tax is to be paid when a person died or had something that contributed to their death while helping in an emergency on-call or on duty as a member of the emergency services, armed forces, or as a humanitarian aid worker.
What is Business Relief?
Business Relief reduces the value of the business or its assets when calculating how much Inheritance Tax is due.
For tax purposes, the estate must include any ownership of a business or share of a business.
Depending on the estate’s assets, Business Reliefs can be of either 50% or 100% and can be passed on while the owner is alive or when the heir is named in the will.
How do I claim Business Relief?
The Business Relief must be claimed while the executor or administrator is calculating the total value of the estate.
When calculating relief at 50%, the market value of the business must be used.
Business relief can be claimed on:
- Property and buildings
- Unlisted shares
What is Agricultural Relief?
Agricultural Relief is when some types of agricultural property are passed on without the need to pay for Inheritance Tax.
How can an agricultural property qualify for Agricultural Relief?
It is possible to pass on agricultural property free of Inheritance Tax as part of a will or even when the person is still alive.
To be qualified for Agricultural Relief an agricultural property is a land or pasture that is used to grow crops or rear animals intensively, and it includes:
- Growing crops
- Stud farms for breeding and rearing horses and grazing
- Short-rotation coppice of trees (planted and harvest at least every 10 years)
- Land which is not being farmed under the Habitat Scheme
- Land which is not being farmed under a crop rotation scheme
- The land’s value of milk quota
- Agricultural shares and securities
- Farm buildings, farm cottages and farmhouses
The following do not qualify for Agricultural Relief:
- Farm equipment and machinery
- Derelict buildings
- Harvested crops
- Property subject to a binding contract for sale
Further qualifiers for agricultural relief
A property must be part of a working farm and may be owner occupied or let in one of the following locations:
- Channel Islands
- Isle of Man
- European Economic Area
The agricultural property also must be owned and occupied for agricultural purposes immediately before its transfer for a period of:
- Two years if it is occupied by the owner, by a company which they control, or their married/civil partner, or;
- Seven years if someone else occupies it
What is Woodland Relief?
Woodland Relief may apply if part of the estate is woodland. When valuing the estate, the woodland’s worth must be included – although the value of the timber might not need to be included in the valuation.
Whoever inherits the land will only pay Inheritance Tax on the trees when they are sold or given away as timber when Woodland Relief applies.
Woodland Relief with other types of relief
If the woodland also qualifies for Business Relief or Agricultural Relief you cannot get Woodland Relief on the property.
If timber from the woodland is sold on a regular basis it will qualify 100% for Business Relief, as long as your loved one owned the wood for at least two years. In this case, Inheritance Tax does not need to be paid by the estate on the value of the land and its trees.
However, if your loved one died prior to completing two years of ownership of the woodland, the estate has the option of paying the Inheritance Tax in annual installments over a ten-year period.