Agricultural Property Tax Relief

A recent edition of BBC’s Countryfile highlighted concerns about the Agricultural Property Tax Relief (APR).

Presenter Tom Heap investigates whether a new generation of land barons are more interested in tax breaks than managing the land. As ever, there are differing points of view, but what is APR and how can it be used (legally, of course!) save on paying Inheritance Tax (IHT)?

Farmers often face a problem because their major capital asset is the farm and they can be “asset rich and cash poor”. This is where Agricultural Property Relief (APR) can help, so that land and buildings occupied for the purposes of agriculture can be inherited, in most circumstances, tax free.

However there are catches, and specific conditions need to be met. HMRC are looking at APR cases with ever greater scrutiny.

APR can be claimed on land and buildings which are occupied “for the purposes of agriculture”; and either

1) owner-occupied for a minimum of two years, or

2) owned for a minimum of seven years and let out to a third party, whether by tenancy or other agreement.

There are specific rules relating to a farmhouse and its occupation that are beyond the scope of this article. However, it is important to note that where a farmer has retired from farming but lives in the farmhouse, whilst letting the farmland to a third party under a tenancy or grazing agreement, it is highly unlikely that the farmhouse will qualify for APR as it is not deemed occupied for the purposes of agriculture. As the farmhouse can be of significant value, this could potentially expose your estate to costly inheritance tax payments.

Whilst there is a relatively new additional tax break on residential property, the overall question of succession to the farm must be considered at the earliest opportunity to ensure the most tax-efficient means of succession.

Failure to do so may lead to a greater tax burden and difficulties for the next generation. It is imperative that legal/tax advice is sought to evaluate your specific circumstances and our expert lawyers can assist. In the first instance, contact our Nicola Steadman.

You can watch the episode here

Published 4 June 2019

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