Agricultural property relief and planning for pitfalls

Agricultural property relief (APR) is very valuable to farmers and landowners. It is the only relief that can provide IHT relief for owner occupied houses as well as relief for landowners who are letting their property.

Unsurprisingly, APR is available on 'agricultural property'. This is property, agricultural land, buildings used for agriculture and cottages and farmhouses occupied for the purposes of agriculture. The relief is limited to the agricultural value of the land, which is the value of the land as though subject to a perpetual covenant prohibiting its use other than for agriculture. Any value in excess of that will not qualify. Following the ruling of the Valuations Tribunal in Antrobus, district valuers frequently suggest that, for farmhouses, the difference between open market value and agricultural value is 30%. This is a rule of thumb figure and each case has to be considered on its own merits.

APR is available at two rates: 100% where vacant possession can be obtained within 12 months and 50% in other cases. Generally, the 50% rate applies to cases where there is a tenancy granted before 1 September 1995. New tenancies granted after that date will qualify for 100% relief.

Before accepting a claim for APR, HMRC will want to see evidence that the farm, including the buildings, is genuinely being occupied for the purposes of husbandry. The legislation includes land used in habitat schemes as being within the definition of agriculture, as well as land which is likely to be brought back into production. It does not include grazing land for adult horses.

In the case of Arnander, the farmhouse was occupied by an elderly couple but the farming operations were carried out through a contracting arrangement. It was decided that the day-to-day management and all acts of husbandry over the land were in that instance solely the responsibility of the contractors. The couple also retained the services of a land agent who was responsible for the management of the land, the farming activities and all discussions with the contractors.

It was found that the landowners were not occupying the farmhouse for the purpose of agriculture.

APR is a generous relief but the rules are complex and we can help advise you on your tax position. This is particularly important where you are a party to a share farming or contracting agreement, and taking advice can help to ensure that there is no detrimental effect on the APR status of the land or the farmhouse.

Approval code: NTEH7092355