Inheritance tax Agriculture land and pensions

How to convert a pension fund into cash and save IHT:

A lady has a pension fund valued at £265,000. She would like to be able access the pension to help her children buy their own house.

She also has a large farm house and 28 acres of land. Unfortunately the land is no longer qualifying as an agriculture asset so it is no longer exempt from IHT. The farm house is valued at circa £1M. The land valued at around £280,000.

If she sells the farm house and land it is likely she will be subject to Capital Gains Tax as there is a disproportionate amount of land. She does not want to sell the land independent of the main house.

A Possible Solution

Under pension legislation she can sell say, 25 acres to her pension fund. She will pay rent of around £2,500 per annum to the pension.

She will receive £265,000. We estimate the CGT will be £30,000.

The end result is she will have £235,000 to gift to her children. It will be outside her estate after 7 years. From next April the pension fund which now has 25 acres of land will be outside her estate for IHT also.
If she sells the whole property the pension fund will receive any uplift on land value free of CGT. The house will be CGT free as it will be her primary place of residence.

The above is based on Hart Greaves understanding of the latest pension legislation. It is not advice and should not be acted upon. Please contact us if you need a bespoke report.

A FULL AND COMPREHENSIVE MEETING NEEDS TO BE CARRIED OUT AND FULL FACTS OBTAINED ABOUT AN INDIVIDUAL’S CIRCUMSTANCES IS UNDERTAKEN BEFORE ANY RECCOMENDATION IS MADE. THIS EXAMPLE IS NOT A RECCOMENDATION.

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