An at a glance freeview guide to Agricultural Property Relief (APR).

Subscribers, see IHT Agricultural Property Relief for your detailed version of this guide.

At a glance

Agricultural Property Relief (APR) is a relief from Inheritance Tax (IHT).

APR is given on the agricultural value of UK agricultural property which has been:

  • owned and occupied by the owner for the purposes of agriculture for at least two years ending with the date of the transfer (death), or
  • owned by you for seven years ending on that date, and occupied throughout (by you or someone else) for  agricultural purposes. In practice, this will apply to let property.

APR is given at two rates: 100% and 50%.

100% relief applies if:

  • You have vacant possession of the property (because you occupy it yourself) or you have a right to vacant possession within 12 months (under the terms of any lease or licence).
  • The land is let and the tenancy started on or after 1st September 1995.
  • By concession: the land is let and either you have a right to vacant possession within 24 months, or the market value of the let property is about the same as its vacant possession value.
  • Under special rules for land let before 10 March 1981 and on the surrender and re-grant of pre 1 September 1995 protected tenancies. See IHT Agricultural Property Relief for full details.

50% relief is available in all other cases.

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 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 (see The Farmhouse below for more details).

What are ‘Agricultural purposes’?

There is no definition of what use qualifies as for the 'purposes of agriculture'. It includes general farming and the rearing of animals including horses on a stud farm. 

Each part of the property must be looked at separately, such as land, farmhouse, farm cottages and other buildings.

HMRC provides examples of what qualifies as 'for agricultural purposes' in their IHT manual, including:

  • Producing food for humans and animals.
  • Supporting animals which are kept to produce food for humans, or for other products, such as wool.
  • Keeping other animals which may be found on an ordinary farm, e.g. working horses.
  • Land which is left fallow.
  • Growing grass for turf.

What is the value of agricultural land?

  • The agricultural value of property is the value which would apply if the property were subject to restrictions which prevent its use otherwise than as agricultural property. It does not therefore take into account possible non-agricultural uses of the property such as residential or commercial property letting.
  • 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 market value in these circumstances so APR may not apply to the whole value of the land. Thought should be given as to how to ensure that IHT business property relief (BPR) applies instead so that the whole value of the land is covered by relief.

Replacement property

There are special rules which apply where property which qualifies for APR is replaced within the two years before death. Provided that:

  • the original and replacement property are owned and occupied for the purposes of agriculture for at least two of the five years (seven of out ten for let property) before death and
  • the original asset (which has been replaced) would have qualified for relief.

APR can be claimed on the replacement property.

Chargeable Lifetime Transfers

Where a lifetime gift is made and it is a subject to a lifetime inheritance tax charge (a chargeable lifetime transfer), for example because it is a transfer to a discretionary trust, and APR is claimed on the gift:

  • APR will be clawed back if the person making the gift dies within seven years and the trust no longer has the assets.

The Farmhouse

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 (Starke and Another v IRC [1995]).

The main factors to be applied when determining whether a farmhouse is of a ’character appropriate’ are considered to be:

  • Is the farmhouse appropriate in terms of its size, layout and content, to the farm buildings and area of farmland being farmed and to the requirements of the agricultural activities conducted on the land?
  • Would a reasonable and informed person regard the property simply as a house with land or as a farmhouse?
  • How long has the farmhouse and agricultural property been associated and is there a history of agricultural production?
  • Considering all other relevant factors, including whether any land is let out and on what terms, is the scale of the agricultural operations in context with the size and nature of the house? For example, a £4million house with 7 bedrooms, a swimming pool, gym and a games room is unlikely to be character appropriate to a 'farm' with 4 acres which are occasionally used for grazing a neighbours sheep for a small fee.

The overall test which may be applied to decide if a property is a farmhouse for APR is "the elephant test", meaning that it is hard to describe but you will know one when you see one!

If APR does not apply then BPR may apply instead, if the conditions for relief are met.

Leaving the farm to a spouse

When a spouse or civil partner inherits property eligible for APR they take over the deceased spouse's holding period for those assets.

This means that even if they die within two years (or seven years where the land is tenanted) of their spouse or civil partner, the relief can still apply on that second death.

There are specific conditions which must be met for this to apply for APR.

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