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What is Agricultural Property Relief?
Agricultural property relief ("APR") is a relief from Inheritance Tax granted under the Inheritance Tax Act 1984. The relief is available on the agricultural value of an agricultural property which is transferred either in lifetime (which would be a gift) or on death.
What is agricultural property?
Agricultural property means agricultural land or pasture and also includes:
- Woodlands and buildings used in the intensive rearing of animals if they are being used with agricultural land or pasture.
- Grazing land where you are responsible for the upkeep.
- Cottages, farm buildings and farmhouses, and any land occupied with them, if they are of a character appropriate to the property.
Importantly, the land does not have to be in the UK. If you have agricultural land and property in the Channel Islands, the Isle of Man, or a European Economic Area, your estate can claim APR to reduce the tax bill.
What is agricultural value?
The agricultural value of the property is the value that would apply if the property were subject to restrictions that prevent its use otherwise than as agricultural property.
Agricultural land which has been granted planning permission is valued for APR as if that planning does not apply. The agricultural value is usually lower than the market value in these circumstances, so APR may not apply to the whole value of the land.
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:
- You had the right to vacant possession immediately before the gift or death or the right to obtain it within the next twelve months.
- You let out the property on or after 1st September 1995.
- You let out the property before 1st September 1995 but had the right to vacant possession within the next 24 months. For this concession to apply, an unchallenged notice to quit must have been served on the tenant before the date of the gift or death.
- You let out the property before 1st September 1995, and transitional relief applies. There is an upper limit of relief in these circumstances Otherwise, relief is available at 50%.
Farmhouses, Farm Cottages And Farm Buildings
Where APR includes cottages, farm buildings and farmhouses, they must be of a character appropriate to the property that is proportionate in size and nature to the requirements of the farming activities conducted on the agricultural land in question. There are various factors to be applied when determining whether a farmhouse is of a character appropriate. Generally, HMRC will look at:
- Whether the building concerned is of a character appropriate in size and nature to the land and pasture that are under the same occupation; and
- Whether the building concerned is occupied for agricultural purposes.
This is only a brief summary of APR and what is required in order to qualify for the relief. Even within each of the sections, there are various caveats, conditions and case law that must be considered in order to satisfy HMRC. Contact our Agriculture Team for more information on the above.
Here to help
If you have any more questions or would like more information regarding Agricultural Property Relief, you can contact our Agriculture Team below.