ACCA · Question 02 · Trusts and Inheritance Tax

SECTION B: ADVISORY REPORT

You are a tax advisor acting for Lord Alistair Vance (aged 72), a high-net-worth individual. Lord Vance owns 'Vance Agri-Innovations', an unincorporated business operating on a large estate he owns outright. The estate is valued at £15 million in total.

The business comprises three distinct elements:

1. Traditional arable farming: Land and machinery valued at £6 million. This element generates an annual profit of £200,000.
2. Commercial property letting: Converted barns leased to local businesses, valued at £5 million. This generates an annual profit of £350,000.
3. Agri-tech drone services: A highly profitable division providing crop-spraying drone services to other farms, valued at £4 million. This generates an annual profit of £600,000.

Lord Vance is a widower and has not made any lifetime gifts. He wishes to step back from the business and is considering two options for succession planning:
Option A: Gifting the entire business and estate directly to his daughter, Clara.
Option B: Transferring the entire business and estate into a Discretionary Trust for the benefit of his grandchildren.

REQUIREMENT:
Prepare a memorandum for Lord Vance advising on the Inheritance Tax (IHT) and Capital Gains Tax (CGT) implications of Option A and Option B.

Your advice must specifically evaluate the availability of Agricultural Property Relief (APR) and Business Property Relief (BPR) on the estate, addressing the mixed-use nature of the business and the application of relevant case law (e.g., the Balfour principle). (25 marks)