Reap what you sow. Inheritance tax planning for farms

Agricultural property relief or APR as it is known, is available on land or pasture used to rear animals or grow crops, and other buildings used for agricultural purposes.  APR doesn’t apply to plant and machinery, livestock, crops and unused farm buildings.

One needn’t be a farmer to qualify for this relief. It is necessary only to own property used for agricultural purposes. It may therefore apply to a landlord who leases land to a farmer.

For farmers, they must have owned and occupied the agricultural property for at least 2 years. For landlords, it must have been owned by them and used for farming for at least 7 years.  If these conditions are not satisfied the relief will not apply.

APR is almost always given at a rate of 100% but note that this is applied to the agricultural value of the land rather than the market value. The market value is what the land would sell for on the open market. The agricultural value is the value of the land assuming it could only be used for farming and could not be redeveloped.  This means that whatever the charge to inheritance tax is, APR is unlikely to reduce it to zero. However, farms often also qualify for business property relief, which if combined with APR, may achieve this.

APR can be given at a rate of 50%, but this applies only to leased land for leases created prior to 1^st September 1995 with over two years left run on them.

We are often asked whether a farmhouse is eligible for APR- it being the farmer’s home as well as agricultural property. The answer is yes provided it is an authentic farmhouse, meaning that its character and size is in keeping with the rest of the farm and it is from where farm operations are managed. Similarly, farm cottages will also apply if they are occupied by employees of the farm or their widowed spouses.

Another concession that may be available to some farmers is heritage tax relief. For this farmland and buildings must qualify as designated heritage property, be preserved as such, and access must be given to the public.

If you would like to discuss anything to do with Wills, Trusts or Probate, please contact our Private Client Team who are available for appointments on 01206 577676 or alternatively email us at [email protected]