Agricultural Property Relief

We have all seen the adverts on television for life insurance saying how important it is to plan your finances to avoid large funeral costs for your loved ones, but what about a large Inheritance Tax (IHT) bill? Agricultural Property Relief is one way in which you can significantly reduce the IHT due on your estate, as well as on lifetime transfers.

What is Agricultural Property Relief?

Agricultural Property Relief (APR) allows you to claim up to 100% IHT relief on the agricultural value of land or buildings, including:

- Farm buildings

- Farmhouses & cottages

- Woodlands with trees that are planted and harvested at least every 10 years

- Buildings used for breeding and rearing horses and the associated grazing for stud farms

- The value of milk quota associated with the land

- Controlling shares in a farming company

The market value of the land does not necessarily equate to the agricultural value of land because it may include the potential development value of the land. The agricultural value is the value of the land assuming it can only be used for farming purposes.

Example

You transfer a plot of land with planning permission for 10 houses to be built with a market value of £1 million to your child. The agricultural value of the land is £250,000 and meets all other criteria to qualify for APR. APR can only be claimed on the £250,000, with the remaining £750,000 being a potentially exempt transfer (PET) for IHT purposes.

How Much Relief?

In all but one scenario, where land or buildings qualify for APR, the relief will be at 100%.

Where the land is let out to a farmer and a lease has been in place since before 1 September 1995, APR is only available at 50%, providing the lease has at least 2 years left to run at the date the land is transferred. If any one of these three criteria are not met, APR is available at 100%.

Qualifying Activities

Agricultural property is defined as land or pasture that is used to grow crops or rear animals intensively. Some other activities also qualify such as woodlands and stud farms as mentioned above. However, APR is not available on property that is used for:

- Liveries

- Horse racing

- Letting (including holiday lets)

- Market gardening

- Commercial woodland (including growing Christmas trees)

Period of Ownership

In order to qualify for APR you need to have owned the property for at least two years if the property has been occupied by yourself or your spouse or civil partner. If the property has been occupied and farmed by someone else, you will need to have owned it for at least 7 years.

Farmhouses and Cottages

The amount of APR available on farmhouses or cottages is dependent on whether the building is of an appropriate size and nature for the farming activity that is being carried out. If the building is larger than necessary for the level of farming activity, then relief may not apply.

For example, a large 8 bedroom mansion with several reception rooms with 5 acres of adjoining farmland is unlikely to qualify for APR.

A cottage or farmhouse must be occupied by someone who is carrying out farming activities on the property. This could be the owner, someone leasing the farm, or a farm employee. The building also qualifies where it is occupied by a retired farm employee or the spouse or civil partner of a deceased farm employee.

If you have any questions about how you can qualify for Agricultural Property Relief, please get in touch.