Safeguarding your estate for the next generation

Recent increases in the value of land and property pose the prospect of significant inheritance tax bills for many landowners.

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Penelope Lang
Published: 28 Nov 2017 Updated: 13 Jun 2022

Recent increases in the value of land and property pose the prospect of significant inheritance tax bills for many landowners. Efficient tax planning can help.

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Inheritance tax poses a dilemma for landowning families. The government can change the tax rules at every budget and it can be difficult for farmers and owners of landed estates to determine how to best protect their family’s inheritance. Most want future generations to inherit and take on ‘custodianship’ of the estate when they die, retaining the estate in the family for the long term.

Historic planning for agricultural land assumed Agricultural Property Relief would cover the value of most of the estate assets on death. Over the years land values have risen significantly and many estates have diversified their activities. Buildings that were used for agriculture may have been converted for either commercial or residential use and farm cottages are now frequently let to “outsiders”.

Agricultural Property Relief is only available on property actually used for agriculture and the relief is restricted to the agricultural value: in other words, the value assumes the land can only be used for farming in perpetuity. A considerable percentage of the value of estate may not be covered by the relief.

The solution will be different for each case, depending on the particular circumstances, but the best advice is to plan early. Tax planning is certainly more restricted now than in the past and those who have entered contrived schemes are finding that the liabilities haven’t necessarily gone away. However, sensible planning, making legitimate use of specific reliefs for certain assets, is perfectly valid. It is often well worth reviewing the position with a specialist.

A starting point is to make use of available exemptions. One can potentially make tax-free gifts to family where the gift is made seven years prior to the death of the donor. So if there is substantial wealth, it may be better to ensure that children and grandchildren benefit during your lifetime, rather than being saddled with a large inheritance tax liability after your death. Passing on ‘non-relievable’ assets early in this way may be preferred, particularly where the emphasis may be on preserving the estate as a single unit while also providing for those who are not expected to inherit the core assets; but watch out for capital gains tax.

Care has to be taken to make sure children and grandchildren have full enjoyment from their gift to ensure there is no “gift with reservation” which would mean that the assets remain in the estate of the donor at death for inheritance tax purposes.

Trusts are still particularly relevant in these scenarios: they offer protection for assets and for the younger generation, preserving the asset until any concerns over age and responsibility are allayed.

Trading businesses, agricultural property or woodlands, can benefit from inheritance tax relief. Valuable works of art, or a ‘heritage property’, can also benefit from inheritance tax exemptions, provided certain undertakings are given and continue after your death, including allowing the public reasonable access.

Making a will is vital, as is revisiting it regularly, ensuring that it is drafted in such a way that where possible, it does not encumber your inheritors with a significant tax liability.

Birthplace is also a factor to be considered: individuals born outside the UK who have not lived here for more than 15 years will usually not be liable for tax on their non-UK assets and they may also be able to benefit from use of overseas trusts. Families of UK citizens who die after they have permanently retired overseas may also face a lower tax bill.

While the themes may be similar, each case is unique. By spending a little time looking at your own situation with a tax adviser, you can help to keep significant assets in the hands of your family.

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.


This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.