Agricultural Property Relief for Farmers and Land Owners

Mike Bracegirdle answers your questions on Agricultural Property Relief.

What is Agricultural Property Relief and how does it related to Inheritance Tax?

Agricultural Property Relief (APR) is an essential relief for farmers and land owners seeking to mitigate their estates Inheritance Tax (IHT) liability. Established in 2007 and amended in 2015 to incorporate the Residential Nil Rate Band, APR focuses on agricultural land as a means to reduce inheritance tax on land used for agricultural purposes and farm houses and buildings, aiming to prevent the forced sale of agricultural properties due to high tax liabilities.

How does Agricultural Property Relief benefit beneficiaries inheriting farming land?

The aim of APR is to make the transfer of farming land upon death less financially burdensome upon the deceased beneficiaries. This relief is particularly crucial for the vast majority of farming enterprises in the UK, which are family-owned. Without the relief, the taxation of 40% of the assets value over the IHT threshold could be such as to force the sale of many family farms, ending generations of building up the farm and its profitability. It is therefore a valuable instrument when advising on Inheritance Tax liability and mitigation.

What land is eligible for Agricultural Property Relief?

APR applies to land that is primarily used for agricultural purposes, including the cultivation of crops and rearing of livestock. This includes arable land, pasture, and other agricultural terrain actively managed for farming activities. Specifically, the land occupied for these purposes must meet certain criteria to qualify for APR, focusing on the occupation and use of the land, farmhouses, cottages, and other buildings in direct support of agriculture.

Are my farm buildings eligible for Agricultural Property Relief?

Structures essential to agricultural operations, including farm buildings such as barns, silos, milking parlours, and storage facilities, qualify for APR  if they are of a character appropriate to the land and are used specifically for agricultural purposes. Farmhouses must be the principal residence for the farming family and farm cottages utilised by farm workers, family members within the farming business, or used for agricultural purposes, can qualify for relief.

What is the rate of Agricultural Property Relief?

Subject to the meeting the criteria, land and building could benefit from 100% relief.

I rent my land out, will I still get Agricultural Property Relief?

The eligibility for APR varies depending on the lease type. Land leased out under an Agricultural Holdings Act Tenancy (both the 1984 and 1986 Act) will only be eligible for 50% APR allowance. Land let out under an annual license or a Farm Business Tenancy (under the 1995 Act) will usually be eligible for 100% APR allowance.

I have just purchased my farm land. Do I still get Agricultural Property Relief?

No, you need to have owned the land for a period of two years.

My land has ‘hope’ value for Residential Development. Will it get?

The value increment due to potential alternative usage, often reflected in the market value, does not qualify for Agricultural Property Relief. Market value can be higher than agricultural value as it includes the value attributable to potential alternative use. However, the increased value over the agricultural value may be eligible for Business Property Relief (BPR). Additionally, for a property to be eligible for APR, the owner must have the right to vacant possession or the ability to obtain vacant possession within a specified time frame, which is crucial for properties with development potential.

My farmhouse has 9 bedrooms, a swimming pool and a gym.  Will I get full APR?

Not necessarily. HMRC applies the “Character Appropriate Test” which assesses whether the farmhouse aligns with the size and scale of the operation of the farm. Generally, the farmhouse must serve as the operational hub of the farm to qualify fully.

I am semi-retired, will my farmhouse qualify for APR?

Eligibility may be impacted. HMRC will look to see if the farmhouse is being used as a retirement home. If no farming activity is apparent this may disqualify part or all of the value of the farmhouse. Therefore, it is sometimes advisable for the older farmer to move to a less expensive property and for younger members of the family within the farming business to occupy the farmhouse.

I have diversified my farm. Will I still get APR?

The eligibility for APR depends on the nature of the additional enterprises. While certain activities like grazing for a livery business may preclude APR eligibility, others like a farm shop selling on-site produce may qualify.

I have taken some land out of production as part of SIF scheme. Will that land qualify for APR?

Presently no, but the government plans to extend April eligibility to such land from April 2025.

I have entered into a binding contract for sale of land. Will it qualify for APR if I die before it’s completed?

No. If you have entered into a binding contract for sale, the land will not qualify for APR. This is not the case with an Option Agreement, which may never be exercised.

My land is in mortgage. Does this affect the valuation for APR?

Yes. The outstanding mortgage amount is deducted from the value of the land prior to completion of the IHT return.

Do agricultural shares and securities qualify for APR?

Yes, provided they a) give control to the deceased and b) forms part of the company’s agricultural assets .

 

How can Butcher & Barlow Assist?

Agricultural Property Relief is a crucial relief from Inheritance Tax for farmers and landowners, safeguarding family farming legacies from excessive tax burdens. By offering relief of up to 100% on eligible agricultural assets, APR ensures the continuity and sustainability of farming enterprises for future generations.

However, APR is complex and requires expert guidance from legal and tax professionals specialising in agricultural law and estate planning. With our team’s guidance and advice, farming families can optimise APR benefits, mitigate tax liabilities, and ensure that future generations are financially protected.

For advice tailored to your specific farming enterprise, assistance on maximising APR relief and ensuring comprehensive estate planning, contact our Agricultural and Rural Affairs Team. Protect your farming legacy and secure the financial future of your family with strategic APR planning.