The Gazette 1982

GAZETTE

JULY/AUGUS T

1982

possible, that it will not create a "second disposition" which might come within the provisions of Section 8. The most obvious rural problem that arises is that of the farmer. The circumstances of each case will vary considerably, depending upon the size, situation, nature and value of the farm, and of the testator's other assets and liabilities, the ages and fitness of the testator and his wife and the number and ages of his children. In most cases, however, the following objectives will be common:— 1. to make suitable provision for the testator's spouse; 2. to make provision for testator's dependent children until their education is complete; 3. subject to the foregoing, to ensure that the farm passes to one of testator's children and, if circumstances permit, to make some additional provision for other children; 4. to achieve the foregoing objectives with the smallest — and, preferably, no — tax liability. If the son who succeeds to the farm (for conven- ience we will call him the Successor) has not received any benefit prior to 2nd June 1982, then he will be entitled to a single tax-free exempt threshold for C.A.T. from both parents of £150,000. For this purpose, however, agricultural land is artificially valued for C.A.T. at either half its market value (assuming the Successor to be eligible as a "farmer") or its market value less £200,000.00, whichever is the greater. On this basis, the Successor could inherit, free of C.A.T., land with a market value of up to £300,000.00. This is equivalent to about 200 acres, if we take the current value of land at £1,500 per acre and represents a reasonably generous exempt threshold. It will be observed, however, that anything the Successor takes in excess of this, such as stock and farm machinery, will then become liable to tax. But if the Successor were undertaking any liabilities, attaching to the land, stock or farm machinery, this, in turn, would reduce the value of his inheritance for tax purposes. It will also be observed that where a Successor is eligible for the maximum relief for agricultural value, there will automatically be a liability for Inheritance Tax; in other words, to reach maximum relief, the market value of the land must now be £400,000.00, resulting in an inheritance of land at the artificial agricultural value of £200,000 and a consequent Inheritance Tax liability of £12,500.00. In most cases, therefore, on the basis of present land values, it will be possible to vest in the Successor quite a substantial farm, with some livestock and machinery and no liability for Inheritance Tax. On the basis of the land values mentioned, the successor could take tax-free 150 acres (market value £225,000.00, agricultural value £112,500.00), together with stock and machinery to the value of £37,500.00. By any standards, this represents a reasonable "tax free" start. The whole position depends very much, however, on land values at the moment of inheritance. For example, in Autumn 1978/Spring 1979, the same land could have been worth over £3,000 an acre, whereas the maximum artificial deduction for agricultural value was only £100,000 — so that, at that time, the inheritance of a

Acquisitions Tax has been terminated by Section 102 of the Finance Act, 1982. This provides that all gifts or inheritances taken by a donee or successor, after 2nd June 1982, from one disponer or from several disponers to whom the same tax tables apply, are aggregable; so that, for example, gifts or inheritances taken by a child from each parent are aggregable. Likewise, gifts taken by a wife from her husband and from her own parents are aggregable. It is important to note, however, that the Section only applies to gifts and inheritances taken on or after 2nd June 1982. Another important provision of the Section is that, from 2nd June 1982, there is no aggregation between gifts and inheritances taken on or after 2nd June 1982 and those taken before that date. This, of course, is very important in relation to any beneficiaries who may already have taken gifts or inheritances. In taking instructions it is accordingly most important to ascertain what gifts or inheritances have already been taken by the beneficiary from the testator or from any other donors in the same Table, as well as the date or dates of such gifts or inheritances. Those arising before the 2nd June 1982 can probably now be ignored, but those received after that date must be taken into account in reckoning any possible liabilities to C.A.T. on the inheritances that will arise under the will. A word of warning is necessary here. Because of the provisions discussed above for aggregation of gifts under the Finance Act, 1982, Section 8 of the C.A.T. Act, 1976, is in many cases not now relevant. Nevertheless, there are circumstances to which that Section can still apply and any intended testamentary disposition should be examined to ensure, as far as

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