For farmers and other agricultural business owners, Agricultural Property Relief (APR) offers an important way to protect the business when handing it down to the next generation. It provides a total or partial exemption from Inheritance Tax (IHT) for certain agricultural property, saving your heirs from a potentially costly tax bill that they might struggle to pay.

APR can be claimed either when passing agricultural property on in your Will or during your lifetime, so it must be carefully considered however you plan to hand things over.

If you are planning for the future of your agricultural estate, it is important to understand how APR works, who can claim it and which assets qualify. We cover these points and more in this article to give you a solid grounding in the subject.

For personal advice on agricultural tax planning, please get in touch.

What property qualifies for APR?

Agricultural Property Relief is available for qualifying farming land, certain buildings and other assets associated with the land. Qualifying assets may include:

• Land used to grow crops
• Pasture land used for intensive animal rearing
• Crops being grown
• Stud farms
• Tree grown for short-rotation coppicing
• Land currently not being farmed under the Habitat Scheme or a crop rotation scheme
• Farm buildings, cottages and farm houses
• The value of milk quotas
• Some company shares and securities

In order to qualify for APR, the property must be part of a working farm in the UK, Channel Islands, Isle of Man or the EEA. The property can be either owner-occupied or let and must have been owned and used for agricultural purposes for a qualifying period, which is:

• 2 years – if the occupier is the owner, a company they control or their spouse/civil partner
• 7 years – if the occupier is not one of the above

Company shares and securities will be eligible for APR if one or both of the following apply:

1. Their value gave control of the business to the deceased at the time of their death
2. Their value comes from company assets in the form of agricultural property

You should always seek specialist advice on whether particular assets meet the criteria to qualify for APR.

What doesn’t qualify for APR?

The following assets do not qualify for APR:

• Machinery
• Farming equipment
• Buildings not actively used for farming
• Livestock
• Crops that have been harvested
• Any property that is subject to a contract of sale

How is agricultural value calculated?

The value of agricultural property for APR purposes is calculated based on the assumption that the land can only be used for agricultural purposes. This means the assumed value is generally significantly lower than if the land or buildings could be used for other purposes e.g. development or non-agricultural occupation.

APR rates

100% Agricultural Property Relief is available where the land was:

• Farmed directly by the owner
• Farmed by a third party under a short-term grazing licence
• Farmed under a tenancy that began on or after 1 September 1995
• Owned before 10 March 1981 if both of the following apply:
  • The land would have qualified under Schedule 8 Finance Act 1975 if it had been transferred before 10 March 1981
  • The owner had no right to vacant possession between 10 March 1981 and the date on which the property was or will now be transferred

If none of the above applies, then a 50% rate of APR will apply.

Lifetime gifts and APR

Agricultural property transferred during the owner’s lifetime can still qualify for APR. For example, if Mr Smith transfers a piece of qualifying land to his daughter during his lifetime, then when Mr Smith dies, if the land would otherwise still be treated as part of his estate, then APR can be claimed for the value of that land as long as certain conditions are met.

Generally speaking, property given as a gift will be considered to be part of the gift giver’s estate if they die within 7 years of making the gift.

The rules around lifetime gifts and APR can be quite complicated, so we strongly recommend seeking specialist legal advice before making a gift and when the gift-giver passes away.

The importance of good legal advice when dealing with agricultural estate planning

If you are planning for the future of your estate, it is absolutely essential to seek specialist legal advice. A good tax planning solicitor will be able to advise you on all of the options for making your estate more tax-efficient, including Agricultural Property Relief and trusts.

At Chubb Bulleid, our team are experts in dealing with agricultural estate planning, so we can ensure you don’t miss out on any opportunities to limit the tax burden on your estate, so you can pass the maximum value to your heirs.

If you are the beneficiary of an agricultural estate or the person administering the estate, it is just as important to have expert support. Making mistakes with the payment of Inheritance Tax can have very serious consequences, so you need to make sure you follow the rules of the letter.

Our estate administration solicitors can guide you through the whole process of dealing with the estate, including making sure you have properly claimed any APR available and that all Inheritance Tax due on the estate is paid promptly.

Speak to our specialist tax planning lawyers

Our experienced Wills, trust and tax planning solicitors in Somerset can provide clear guidance on Agricultural Property relief and all other aspects of estate planning.

We have local offices in Wells, Street and Somerton, with our team being accessible by email, phone and video conferencing for your convenience.

To speak to one of our experts, please call us on 01749 836100 or Ask us a Question.

 

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