Agricultural Property Relief
APR is an Inheritance Tax relief that is based on the agricultural value of qualifying agricultural property when it is transferred, either in lifetime or on death.
Provided such property is situated in the UK, Channel Islands, the Isle of Man or the European Economic area, the following assets may qualify for APR :
- agricultural land or pasture (including ‘set-aside’ land)
- woodland occupied with agricultural land or pasture
- buildings used in connection with the intensive rearing of livestock or fish (not for sport)
- farm cottages
- farm buildings (of a size which makes them ancillary to the land)
- growing crops when transferred with land
- stud farms engaged in breeding and rearing of horses and the land for grazing
This is not the open-market value, but ‘the value which would be the value if the property were subject to a perpetual covenant prohibiting its use other than as agricultural property’.
It does not include any development value or the added value of a house as a desirable country residence.
Minimum periods of ownership to qualify for the relief
The property must either:
- Have been occupied by the transferor for the purposes of agriculture for 2 years preceding the date of transfer.
- have been owned (or leased) by the transferor for the 7 years preceding the transfer and let or occupied (throughout the 7 years) for the purposes of agriculture by the transferor (landlord or tenant).
If a spouse or civil partner inherits property, any period during which their spouse or civil partner owned or occupied it can be combined with the survivors period of ownership.
Periods of ownership can also be combined when one form of agricultural property replaces another.
There are 2 rates.
1. The higher 100% is available after 10 March 1992 where:
- the transferor has the right to vacant possession before transfer, or could obtain vacant possession within 12 months (this can be extended to 24 months by concession), or
- the property is valued broadly equivalent to OMV notwithstanding the terms of the tenancy, or
- the transferor has been entitled to his interest since before 10 March 1981 and the conditions for ‘working farmer relief’ are satisfied’, or
- the property does not meet any of the preceding conditions but is let on a tenancy that began on or after 1 September 1995.
2. The 50% rate applies where land is let under an old Agricultural Holdings Act tenancy.
Farmhouses need to pass a number of tests in order to qualify as a farmhouse and benefit from APR.
One such test is known as the elephant test, which put simply is “you know it when you see it”. In other words, farmhouses must be of a character appropriate to the size and nature of the farm.
A common problem in obtaining APR on a farmhouse arises where the farmer has gifted or sold a large amount of the land prior to transfer, for example, a farmer owns 400 acres and gifts 390 acres away to his children. The farmhouse may then be classed as a large house attached to land and fail to attract the relief.
The farmhouse must be occupied for the purposes of agriculture. This needs to be an individual who is actively involved in the farming activities. Problems can arise here when a farmer is no longer active or the farming is contracted out.
A cottage must be occupied by a farm worker.
Unlike farmhouses, the cottage can be occupied by a retired farm employee or their surviving spouse/civil partner if either one of the following conditions is satisfied :-
- the occupier is a statutory protected tenant; or
- the occupation is under a lease granted to the worker for their life and that of any surviving spouse/civil partner, as part of their employment contract by the landlord for agricultural purposes.
Issues to consider
Is your land being used for agricultural purposes?
Are your buildings being used for agricultural purposes?
Is the active farmer living in the farmhouse?
What agreement do you have in place with the farmer or tenant?
Is there development potential?
Is the agricultural value significantly lower than the open market value on the farmhouse?