UK tax discrimination – Commission’s opinion does

The UK has been formally requested by the European Commission to amend part of its inheritance tax legislation due to its discriminatory nature. The commission has given the UK two months to provide a satisfactory response to this request and failure to do so may see the matter referred to the European Court of Justice. This request is in the form of a reasoned opinion from the Commission and relates to the inheritance tax relief on agricultural property.

If UK law is changed to accommodate the Commission, this will have a significant impact on country property prices in desirable EU locations. It may also adversely affect the UK country house market. This is because wealthy individuals can purchase country houses with agricultural land and lease the land to farmers.

Even though these affluent landlords do not carry out any farming activity, they will become entitled to inheritance tax relief, which may in many cases amount to a complete exemption. The position regarding farmhouses owned as part of an agricultural holding is complicated, although in almost every case, significant inheritance tax relief will be available. This straightforward way of estate planning – simply by buying an agricultural property’ – has given such properties a premium in the market over normal’ topend houses.

Opening the relief up to EU properties will mean that the rich can now consider buying vineyards, equestrian properties and Alpine forests.