On 19 November 2024, Jeremy Clarkson found himself being questioned by Victoria Derbyshire at the protests outside Parliament in relation to the planned changes to Agricultural and Business Property Relief from Inheritance Tax (IHT), to which his response appeared to be that he would simply put his farm in a Trust, and as long as he survives for seven years then it would be fine.

Here we explore the accuracy of Mr Clarkson’s comments, and the benefit of using professional advisors in navigating exposure to IHT and other taxes when using Trusts.

Chapter One: Budgeting

Whilst Mr Clarkson’s motivations for purchasing his farm are entirely his own, there was no doubt a previous benefit for IHT that his farm offered which is set to be curtailed by the 2024 Autumn Budget.

At present, subject to various conditions, the agricultural value of farmland, buildings and farmhouses have the potential to attract 100% relief from IHT, known as Agricultural Property Relief (APR) The relief is only on the agricultural value of the property, not the market value, so many farms also rely on other farm assets also securing 100% relief from IHT as business property, known as Business Property Relief (BPR).

Following the 2024 Autumn Budget, from 6 April 2026 the 100% relief for agricultural and business property would be limited to the first £1m of combined qualifying assets, with any qualifying excess granted relief at a rate of 50%. On death, this would mean that farms have the potential to pay IHT at an effective rate of 20% on the value exceeding £1m (together with other allowances), where they may have once faced no IHT exposure.

Whilst many farms are inherited across generations, with increasing value of land, and the high costs of farm administration that Mr Clarkson has brought to wider public attention, many farmers fear whether their estates would have the cash to settle IHT on death so farming can continue.

Chapter Two: Trusting

At their core, Trusts can allow wealth to be passed to future generations whilst controlling access to and protecting that wealth against divorce or bankruptcy of any potential beneficiary, and supporting bloodline and wider family for up to 125 years.

As Mr Clarkson alluded to, Trusts are also used as a vehicle for IHT planning in estates. Where properly administered, a Trust could allow Mr Clarkson to reduce the value of his estate for IHT by gifting assets into the Trust, so that their value and any growth in the value fall outside of his estate.

However, to be effective vehicles for IHT planning, Mr Clarkson would not be able to benefit from his Trust; the nature of Trusts is that the person gifting the assets must surrender beneficial control in favour of other named or potential beneficiaries. As will be discussed below, there are a number of potential pitfalls with Mr Clarkson’s plans.

Chapter Three: Inheriting

Almost all lifetime Trusts created today would be subject to an IHT regime known as the Relevant Property Regime whereby the Trust itself is subject to IHT; Mr Clarkson would not escape all IHT by putting his farm into a Trust.

Putting assets into a Trust will, in most cases, trigger a lifetime chargeable event to IHT known as an “entry charge”. Typically, each person can gift up to the value of their Nil Rate Band (usually £325,000) into a Trust every seven years without triggering a payment of IHT, but anything in excess of this would be taxed at lifetime rates, which are half of those applicable on death. If Mr Clarkson were to put his farm into Trust today, APR and BPR would be available at potentially 100%, meaning he may not incur an entry charge. However, should he put his Trust in place after 6 April 2026, he may find he has an entry charge at an effective rate of 10% on the value of the farm exceeding £1m.

In principle, if Mr Clarkson survived seven years after gifting his farm into a Trust and retained no benefit from the farm before his death, his personal estate may pay no further IHT on the farm. However, the Trust has more IHT to pay.

Every 10 years after its creation, Mr Clarkson’s Trust would pay an “anniversary charge” to IHT at a maximum rate of 6%. Trusts holding assets qualifying for APR or BPR at these anniversaries falling before 6 April 2026 would likely qualify for 100% relief from IHT. However, for any each tenth anniversaries falling after 6 April 2026, such as with Mr Clarkson’s Trust, 100% relief would be limited and there may be an IHT charge at a rate of up to 3% of the value of the farm exceeding £1m.

If capital were to be distributed to a beneficiary of Mr Clarkson’s Trust within each 10 year cycle, the Trust would pay an “exit charge” on the value of the capital leaving the Trust; this would represent a proportion of the next anniversary charge.

New Trusts like Mr Clarkson’s could have an IHT bill on entry, exits and anniversaries, but existing Trusts holding farms may find they have new liabilities to IHT as APR and BPR becomes limited. Accurate valuations of qualifying assets, robust accounting and liquidity will be essential for ensuring IHT liabilities are met, especially with late-payment interest set to rise by a further 1.5% from 6 April 2026.

Chapter Four: Benefitting

Much of the IHT planning surrounding Trusts relies upon the creator of the Trust not benefitting from the assets once in Trust. However, we would presume that Mr Clarkson would intend to continue living at his farmhouse, filming on the land, and receive other benefits from the farm after gifting it into a Trust.

Where the creator of a Trust retains a benefit in the Trust assets, this is known as a “Gift with Reservation” and is disastrous for IHT; Mr Clarkson’s benefit from the assets in his Trust would, in effect, bring their value back into his estate for IHT purposes on death. This would completely undermine the planning of the Trust, but may also result in a further charges to IHT on Mr Clarkson’s death in addition to the Trust’s charges set out above.

Chapter Five: Gaining

As well as IHT problems in creating Mr Clarkson’s Trust, there is also Capital Gains Tax (CGT) to consider. Mr Clarkson’s gift of his farm into a Trust would constitute a disposal for CGT, which would trigger a liability at rate of 18% or 24%.

Whilst there are situations where any taxable gain can be ‘held over’ until the Trust disposes of Mr Clarkson’s farm, this is unlikely to be available if Mr Clarkson were to retain a benefit in the farm once in Trust.

Some Principal Private Residence Relief may be available for Mr Clarkson to reduce any taxable gain, however this would be limited in time to the period when Mr Clarkson both owned an occupied the property as his main residence, and limited in geography to the property and “Permitted Area” of land required for the reasonable enjoyment of his home. Despite significant investment, we suspect Mr Clarkson’s farm will also have increased in value, making CGT a real concern.

Whilst the rates of CGT are lower than IHT, incurring the gain may not be beneficial for Mr Clarkson to pay alongside IHT, not to mention losing the tax-free uplift for CGT which would otherwise be available if he owned the farm at his death.

Chapter Six: Incoming 

As we would expect Mr Clarkson will continue farming, filming and running the Diddly Squat Farm Shop on the farm after giving it into a Trust, the income generated will be subject to Income Tax (INCT). 

Unless there is a beneficiary entitled to receive income, Trusts typically pay INCT at Trust Rates, currently 39.35% for dividends and 45% for most other types of income. Individuals would, in principle, have a “Personal Allowance” and small Savings and Dividend Allowances that are not available to Trusts.

Should the Trustees distribute income to a beneficiary who pays a lower rate of INCT, that beneficiary can claim a tax credit for overpaid tax. However, the Trustees must calculate these potential credits and maintain a ‘tax pool’ subject to complex calculations. Trustees must report and pay INCT each year, together with reporting details of the tax pool, and would be personally liable for any shortfall in the tax pool.

Chapter Seven: Assuming

As if there were not enough ground to cover already, Mr Clarkson’s plans to put his assets into Trusts assumes he might not also encounter the following difficulties: 

• that the farm and other assets do not need to be extracted from existing structures, such as a partnership or limited company
• that the farm and other assets are not co-owned by Mr Clarkson and others who would be unwilling to co-operate with such Trust planning
• that the farm and other assets are not subject to mortgage or other borrowing facilities used in the farm’s operation
• that the gift of the farm would not also trigger liabilities to Stamp Duty Land Tax at higher rates. This could be the case if that any debt was secured on the farm

Chapter Eight: Planning

There is a need for well-advised planning when dealing with your affairs and mitigating any exposure to IHT, including:

• careful consideration of lifetime Trust structures and all the legal and tax implications of their creation and administration
• as current proposals in the 2024 Autumn Budget do not allow the £1m APR/BPR ‘allowance’ to be transferred between spouses, they may need to be used on death otherwise they may be lost entirely
• effective wider estate planning making use of spousal exemptions for remaining assets in estates.
• incorporating Trust structures in Wills to allow for flexible estate planning over farming and business assets after death and to preserve farming and business assets for bloodline relatives.