The Gazette 1982

GAZETTE

JULY/AUGUS

1982

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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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