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Rieslings to be cheerful? HMRC revises IHT APR guidance

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

At present, there seems no shortage in professionals, taxpayers, action groups and MPs ready to suggest that encounters with HMRC can be sufficiently stressful as to drive them to drink.

However, I reckon that a new initiative may actually prompt both private and commercial taxpayers to raise a glass or two to HMRC’s as a result of changes to its view on the application of certain Inheritance Tax (“IHT”) reliefs.

It has issued an update to its guidance note on Agricultural Property Relief (APR) which carries notable consequences for people fortunate enough to own a vineyard or orchard.

Under the new rules, people can pass on land on which grapes or apples are grown free of IHT either during their lifetime or as part of a will.

The change extends the definition of what constitutes food to cover the key ingredients of wines and ciders.

Previously, it was considered that APR only applied to land used for growing crops or raising and grazing livestock .

It did not, though, extend to farm equipment, any derelict farm buildings or livestock itself.

Initially, APR was limited to property across the UK, Channel Islands and the Isle of Man but, following an objection from the European Commission in January 2009 that such a provision was “not compatible with the free movement of capital”, it was extended to the rest of the European Economic Area (EEA) later the same year.

It’s certainly true that wealthy individuals have invested in European viticulture for some time. The Tuscan operation of Sting, for example, demonstrates that he’s equally capable with bottling quality wine as with a bass guitar.

With pressure for IHT reform growing, the Government published research in 2017 examining whether such acquisitions meant APR was being exploited for IHT purposes.

Perhaps surprisingly, it concluded that few individuals engaged in estate planning – particularly without specialist advice – were aware of the potential benefits of such reliefs.

There is every possibility that more people will give it some thought now that HMRC has redrawn the rules.

Interest might additionally be fuelled by the fact that people don’t have to sink their cash in the traditional Old World wine heartland of Spain, France and Italy.

Wine GB, the body representing the domestic wine industry, has reported that the amount of land across Britain dedicated to wine production has trebled since the turn of the century ().

The success of the business in the UK – as exemplified by a rise in exports to the likes of the US, Japan and Scandinavia and aided by a rise in temperatures year’-round – has, according to one estimate, seen the value of wine-friendly land selling for double that of other agricultural property.

More than merely offering a rosy (or rosé) future for homegrown tipple, there is another possible dimension.

With Brexit still unclear but very much still on the cards, the drinks industry is one of many trying to second guess whether withdrawal from the EU will affect Britons’ palate.

One major UK retailer has talked of wine being stockpiled to prevent shortages should a ‘no-deal’ Brexit result in tariffs and greater difficulty in obtaining supplies.

Against that context, HMRC’s move on APR might just be something of a masterstroke.

Following an exit from the EU, it would seem to be in the government’s gift to redefine APR such that it did not include land outside of the UK.

This could be done immediately if there was no deal or, one would assume, once any transitional period had elapsed if there was a deal.

This could foster investment in a burgeoning British wine industry and other UK agricultural land (rather than Tuscany and southern France, for instance).

This is, of course, one example of how taxes can propel overseas’ sales and generate revenue for the Treasury in the manner which we at ETC Tax outlined in our special Brexit White Paper only last month*.

Taxes and tipple as a possible cure for the post-Brexit blues? I’ll drink to that!

 

Find out more about this relief in our Knowledge Centre article on APR

If you have any queries over Agricultural Property Relief, or IHT more generally, then please do get in touch.

 

*This paper has since been updated

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