Agricultural property relief
Agricultural Property Relief (“APR”) can, for inheritance tax (‘IHT’) purposes reduce the value of agricultural property by 50% or 100%. This is a very attractive concept but a complicated one.
When is APR available?
It is available on the agricultural value of agricultural property which is transferred either in life (gift) or on death. The property must not be subject to a binding contract for sale.
What is agricultural property?
It is property in the UK, Channel Islands, the Isle of Man or the European Economic area.
The following assets apply :
- Agricultural land or pasture
- Farmhouses, cottages and buildings
- Growing crops when transferred with land
- Stud farms engaged in breeding and rearing of horses and the land for grazing
What is agricultural value
This is not the open-market value but the value the property would have if it could only be used as agricultural property.
It does not include any development value or the added value of a house as a desirable country residence.
How soon do I qualify for the relief?
There is a minimum period of ownership or occupation. You must:
- Have occupied the property for agricultural purposes for the last two years; or
- Owned it for the last seven years and throughout that time it was occupied for agricultural purposes.
If you inherit property, ownership runs from the date of death. This is also true for occupation if it is subsequently occupied.
If a spouse or civil partner inherits property, relief is available for any period during which their spouse or civil partner owned or occupied it.
How do I get the relief at 100%?
APR is available at 100% if:
- At the date of the transfer you have the right to vacant possession or you could obtain it within the next twelve months
- Land was let on a grazing licence
- Property is let on a tenancy beginning on or after 1 September 1995
Otherwise relief is available at 50%.
Are there problems with farmhouses?
Farmhouses need to pass a number of tests in order to benefit from APR. One such test is known as the elephant test, which put simply is “you know it when you see it”. Farmhouses must be of a character appropriate to the size and nature of the farm.
A common problem is when the farmer has gifted or sold a large amount of the land prior to transfer, for example, a farmer owns 400 acres and gifts 390 acres away to his children. The farmhouse may then be classed as a large house with a bit of land.
The farmhouse must be occupied for the purposes of agriculture. This needs to be an individual who is actively involved in the farming activities. Problems here can arise when for example the farmer due to age is no longer active or the farm is contracted out.
What are the rules regarding cottages?
A cottage must be occupied by a farm worker. Unlike farmhouses, the cottage can be occupied by a retired farm employee or their surviving spouse/civil partner if either one of the following conditions is satisfied :-
- The occupier is a statutory protected tenant; or
- The occupation is under a lease granted to the worker for their life and that of any surviving spouse/civil partner, as part of their employment contract by the landlord for agricultural purposes.
What about a gift of property?
For IHT purposes, it is necessary to survive 7 years from the date of the gift for it to be considered outside of your estate. If you do not survive 7 years, the value of the gift is added back into your estate. APR will be available if:
- At the date of the gift, the property qualified for APR;
- The property was owned by the transferee (the person to whom the gift was made) throughout the period from the date of the gift to the death of the transferor (the person who made the gift) or the death of the transferee if earlier;
- It is not subject to a binding contract; and
- At the date of the death it is still considered to be agricultural property and has been occupied for agricultural purposes throughout the period.
Issues to consider
You may wish to consider the following issues when looking at your own estate :
- Is your land being used for agricultural purposes?
- Are your buildings being used for agricultural purposes?
- Is the active farmer living in the farmhouse?
- What relief is available to you under any agreement you have in place with the farmer or tenant?
- Is there development potential?
- Is the agricultural value significantly lower than the open market value on the farmhouse?
- Is business property relief available for your business?
It is important your adviser understands the complexity of agricultural property.
Senior Associate, Clare Harris, is a key member of the Greenwoods GRM Agricultural and Rural Business team. Having grown up in a farming family, Clare particularly grasps the issues those running rural businesses can face.
Clare is a Fellow of the ALA (Agricultural Law Association) and a member of CLA (Country Land and Business Association).
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Call Clare Harris on +44 (0)1223 785289.
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