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When is Agricultural Relief available?
You can pass on some agricultural property free of Inheritance Tax, either during your lifetime or as part of your will.
Agricultural property that qualifies for Agricultural Relief is land or pasture that is used to grow crops or to rear animals intensively.
In addition to this it also includes, growing crops, stud farms for breeding and rearing horses and grazing, trees that are planted and harvested at least every 10 years (short-rotation coppice), land not currently being farmed under the Habitat Scheme, land not currently being farmed under a crop rotation scheme, the value of milk quota associated with the land, some agricultural shares and securities, farm buildings, farm cottages and farmhouses.
Items that do not qualify for Agricultural Relief include farm equipment and machinery, derelict buildings, harvested crops, livestock and property subject to a binding contract for sale.
What is agricultural property?
It is property in the UK, Channel Islands, the Isle of Man or the European Economic area. The property may be owner occupied or let, but it must be part of a working farm.
How soon do I qualify for the relief?
There is a minimum period of ownership or occupation.
The property must have been owned and occupied for agricultural purposes immediately before its transfer for 2 years if occupied by the owner, a company controlled by them, or their spouse or civil partner or for 7 years if occupied by someone else.
How do I get the relief at 100%?
Agricultural Relief is available at 100% if at the date of the transfer you have the right to vacant possession or you could obtain it within the next twelve months, or if the land was let on a grazing licence or if the property is let on a tenancy beginning on or after 1 September 1995.
Otherwise relief is available at the lower rate of 50%.
Do farmhouses and cottages qualify for the Relief?
Farmhouses need to pass a number of tests in order to benefit from Agricultural Relief.
One such test is known as the elephant test, which put simply is “you know it when you see it”. Farmhouses must be of a character appropriate to the size and nature of the farm. The property is valued as if it could only be used for agricultural purposes. Any value over and above this ‘agricultural value’, such as the market price of a country residence, does not qualify for Agricultural Relief.
A common problem is when 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 with a bit of land.
The farmhouse must be occupied for the purposes of agriculture. This needs to be by an individual who is actively involved in the farming activities. Problems here can arise when, for example, the farmer, due to age, is no longer active, or the farm is contracted out.
A cottage or farmhouse must be occupied by someone employed in farming or a retired farm employee or the spouse or civil partner of a deceased farm employee.
They must occupy the property as either a tenant under a lease granted as part of their former employment contract or a protected tenant with statutory rights.
What about a gift of property?
For IHT purposes, it is necessary to survive 7 years from the date of the gift for it to be considered outside of your estate. If you do not survive 7 years, the value of the gift is added back into your estate.
Agricultural Relief will be available if:
• At the date of the gift, the property qualified for APR;
• The property was owned by the transferee (the person to whom the gift was made) throughout the period from the date of the gift to the death of the transferor (the person who made the gift) or the death of the transferee if earlier;
• It is not subject to a binding contract; and
• At the date of the death it is still considered to be agricultural property and has been occupied for agricultural purposes throughout the period.
Can I also claim Business Relief?
No, you cannot claim Business Relief for an asset that qualifies for Agricultural Relief. However, if a farming business is not eligible for Agricultural Relief, Business Relief may be claimed if the conditions are met.
What about Capital Gains Tax?
In this climate of housing shortages, many farmers may be tempted to sell off land to developers and in this scenario, it may be possible to claim Entrepreneur’s Relief to reduce the amount of Capital Gains Tax (CGT) payable, if the farmer has been in business and owns the assets for a year prior to disposal. However, it may be necessary to restructure matters somewhat before sale as simply selling off a piece of land that is part of a farming business which then continues to operate as before, may not qualify for the relief.
For more bespoke and detailed advice about Agricultural Relief and Inheritance Tax planning please contact our Private Client Department on 01743 285888 or by email on firstname.lastname@example.org
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