Agricultural Property Relief is a tax relief granted under the Inheritance Tax Act 1984. The relief is designed to provide a tax saving on the agricultural value of farm property, transferred either during lifetime by way of a gift, or on death under a will (or intestacy).
Contact Caroline Dowding
Contact our expert agricultural lawyers to discuss whether you are eligible to claim Agricultural Property Relief. We can also help you plan your inheritance and can talk to you about succession planning.
Agricultural Property Relief FAQ
What is agricultural property?
Agricultural property is defined by HMRC as land or pasture that is used to grow crops or to rear animals intensively. This includes:
- Farmhouses, farm buildings and cottages
- Growing crops
- Stud farms for breeding and rearing horses and grazing
- Short-rotation coppice
- Land not currently being farmed under the Habitat Scheme or crop rotation scheme
- Value of milk quota associated with the land
- Some agricultural shares and securities
- Woodland, providing it is ancillary to the land
What assets don’t qualify for Agricultural Property Relief?
Some farming elements will not qualify for APR. This includes:
- Farm equipment
- Derelict buildings
- Harvested crops
- Livestock
- Property subject to a binding contract of sale
It is important to note that horses are not classed as agricultural in nature, and therefore grazing horses would not attract APR.
Where should a property be to qualify for APR?
For a property to qualify for APR, it must be located within the UK, Channel Islands, and Isle of Man or within the European Economic Area (EEA). The EEA includes EU countries as well as Iceland, Liechtenstein and Norway. Switzerland is no longer a part of the EEA.
What are the occupation or ownership requirements?
Certain periods of ownership must also be satisfied for it to qualify for APR. If the deceased is the farmer, and has owned and occupied the farmhouse for a two year period, then the occupation test is satisfied. If the transferor is not the farmer, the farmhouse must be owned for seven years and must be occupied for agricultural purposes during this period.
It must, however, be highlighted that the property must be owned or occupied for agricultural purposes to meet the requisite criteria.
I meet the above criteria for agricultural property, so can I get relief on my farmhouse?
In recent years, claims for Agricultural Property Relief on farmhouses have come under scrutiny by HMRC, as house prices have risen, and country farmhouses have become attractive for wealthy non-farmers.
When looking at APR, it is important to define ‘farmhouse’. Although there is no legislative definition, broadly speaking, it is a dwelling for the farmer and a place where the farming operations are conducted.
Who is the farmer within this definition?
When someone owns the farmhouse and surrounding agricultural land, and runs the farm on a daily basis, they are clearly the farmer.
However, the answer is not always clear cut, especially in modern farming where land may be let on grazing licences, farmed by contract farmers, managed by agents or may form part of a partnership or shared farming agreement. In these instances, the APR position will depend on how hands-on the farmer is.
To ensure the farmhouse is used for agricultural purposes, it is advisable to hold meetings within the farmhouse itself, and have the location documented within the minutes. Records should then be kept for a minimum of 7 years.
How does HMRC decide if Agricultural Property Relief applies to the farmhouse?
Once it has been established that the property is a farmhouse, HMRC will look at two aspects to determine whether the farmhouse is of a ‘character appropriate’ to the agricultural land.
Firstly, they will look at what agricultural land is taken into consideration. There has to be a link between the land and the farmhouse, namely, common occupation between the two.
Once this has been established, HMRC will consider whether the house is proportionate in size and nature to the requirements of the farming activities conducted on the agricultural land. It will take into account the size, layout, content and style of the farmhouse, when taken with the associated farmland and buildings.
Other factors that will be considered are:
- the historical connection between the house and the farm
- the value of the house in relation to the profitability of the land
- whether the house is dominant or ancillary to the land itself
How much relief is Agricultural Property Relief worth?
If the above criterion is satisfied, APR will be granted at 100%. That is unless the land is tenanted after 1 September 1995 and the agricultural tenancy has at least 24 months remaining at the date of death, in which case relief is restricted to 50%.
However, relief will only be given on the agricultural value of the land, not the open market value.
What is agricultural value?
HMRC considers agricultural value to be the price someone would purchase the property or land at if there was a restriction over that asset, so that it could only be used for agricultural purposes.
HMRC will take into consideration development or mineral value or whether the location of the property would attract wealthy commuters. In these instances, the agricultural value is likely to be less than the open market value.
Will I definitely get Agricultural Property Relief?
It is crucial to mention that there is no hard and fast rule. What may be deemed to be a farmhouse in one area may not be in another and the same will apply to the agricultural value. It is important to look at each case on its own merit and take the appropriate professional advice to give your estate the best chance of obtaining the relief. This relief is extremely favourable to those in the farming industry, and will always come under scrutiny from HMRC, especially for the farmhouse.
