For UK residents who have invested in vineyards and woodlands in Europe, significant changes are on the horizon. The recent budget announcement may impact their inheritance plans, and if you or someone you know has property on the Continent, it’s essential to understand these changes.
The Essence of the Change: Agricultural Property Relief
Agricultural Property Relief (APR) is a tax relief that, until recently, allowed UK residents to pass on agricultural property – including farmland, woodland, and vineyards – without having to pay inheritance tax. This tax relief was created to ensure that families could continue to hand down their agricultural properties without the burden of hefty death duties.
In 2009, to comply with EU law, this relief was expanded to include agricultural properties within the European continent. However, post-Brexit, the relief will soon be limited only to agricultural properties on British soil.
A Swift Timeline of Events:
- March 2023: The change to APR was announced.
- April 2024: Inheritance tax exemptions for European agricultural property will end.
Despite its potential implications, the change garnered minimal public attention, as it affects a niche segment of UK taxpayers.
Who Stands to Lose the Most?
This shift in tax policy might seem esoteric, but for farmers, expatriates, and investors with land in Europe, it could lead to significant financial ramifications. Julie Butler, from the accountancy firm Butler & Co, highlighted that the “unwell and elderly” might be particularly vulnerable, especially if they aren’t up-to-date with this looming tax change.
Notably, wine enthusiasts with vineyards in European regions will feel the pinch. French vineyards, for instance, have seen their average price double in the past three decades, reflecting the burgeoning interest in wine investments. Today, owning a 10-hectare PDO (Protected Designation of Origin) vineyard in France – where the entire winemaking process occurs – could set an investor back by over £1 million.
Given the UK’s inheritance tax structure, estates valued over the nil-rate band of £325,000 are taxed at 40%. For UK domiciles, this means their global assets are included in the estate valuation. Consequently, many expatriates, despite having lived abroad for years, could be liable for this tax.
Farmers investing abroad, especially those who ventured into Eastern European farmland following the 2009 APR extension, are also in the spotlight. According to Ian Parker from Whitley Stimpson, farmland prices in central Europe surged by 300% between 2011 and 2021. Poland and Romania have been standout performers in this regard.
However, there’s a silver lining for some. Landowning farmers who share both the costs and profits of the farm might avoid the inheritance tax, thanks to the “Business Property Relief”, which promotes intergenerational family business continuity.
Conversely, those who rent out their overseas farms stand to lose out, facing potential tax liabilities.
The Wider Debate: The Future of Inheritance Tax
The upcoming changes to APR occur amidst calls from over 50 MPs and prominent publications, including The Telegraph, urging the Government to abolish inheritance tax altogether.
In response, an HM Treasury spokesperson stated, “More than 93% of estates are predicted to have no inheritance tax liability in upcoming years.” They further clarified that spouses and civil partners could transfer up to £1 million without any inheritance tax implications.
As April 2024 approaches, affected parties should consult with financial advisors and plan accordingly, ensuring that their inheritance plans are in line with the revised tax landscape.