What is agricultural property relief for inheritance tax?

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Accepted Answer

Here is a comprehensive explanation of Agricultural Property Relief (APR) for inheritance tax.

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## Agricultural Property Relief (APR) for Inheritance Tax

### What the law says

**Governing legislation:** APR is governed by sections 115–124B of the Inheritance Tax Act 1984 (IHTA 1984), Chapter II of Part V.

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#### 1. The Relief (IHTA 1984, s.116)

Where the whole or part of the value transferred by a transfer of value is attributable to the **agricultural value** of agricultural property, that value is reduced by the "appropriate percentage."

**The appropriate percentage is 100%** if:
- (a) the transferor's interest immediately before the transfer carries the **right to vacant possession** or the right to obtain it within the next 12 months; or
- (b) the transferor has been beneficially entitled to the interest since before 10 March 1981 and certain conditions are met; or
- (c) the interest does not carry vacant possession rights **because the property is let on a tenancy beginning on or after 1 September 1995**.

**The appropriate percentage is 50%** in any other case.

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#### 2. Definition of "Agricultural Property" (IHTA 1984, s.115(2))

"Agricultural property" means:
- **Agricultural land or pasture**;
- **Woodland** and any building used in connection with the intensive rearing of livestock or fish, if occupied with agricultural land or pasture and the occupation is ancillary to it;
- **Cottages, farm buildings and farmhouses**, together with the land occupied with them, as are **of a character appropriate to the property**.

**Agricultural value** is the value the property would have if it were subject to a perpetual covenant prohibiting its use otherwise than as agricultural property.

Additional activities treated as agriculture by statute:
- **Breeding and rearing of horses** on a stud farm and grazing of horses in connection with those activities (s.115(4)).
- **Short rotation coppice** cultivation (land and buildings used in connection with it are treated as agricultural land/farm buildings).

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#### 3. Minimum Period of Occupation or Ownership (IHTA 1984, s.117)

The relief does not apply unless:
- (a) the property was **occupied by the transferor for agricultural purposes throughout the 2 years** ending with the date of transfer; **or**
- (b) the property was **owned by the transferor throughout the 7 years** ending with the date of transfer and was throughout that period **occupied (by him or another) for the purposes of agriculture**.

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#### 4. Geographical Scope (IHTA 1984, s.115(5), as amended)

For transfers of value made **on or after 6 April 2024**, APR applies only to agricultural property **in the United Kingdom**.

*(Note: Prior to 6 April 2024, the relief also extended to the Channel Islands, Isle of Man, and EEA states.)*

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#### 5. Environmental Management Agreements (IHTA 1984, s.124C)

Land is treated as agricultural property occupied for the purposes of agriculture if:
- It was agricultural property throughout the **2 years ending with the day it became subject to an environmental management agreement**; and
- Since that day, it has been **used and managed in accordance with the agreement**.

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#### 6. Replacement Property (IHTA 1984, s.118)

Where agricultural property replaced other agricultural property, the occupation/ownership conditions can be satisfied by aggregating periods across the replaced properties (2 years out of the last 5 for occupation; 7 years out of the last 10 for ownership).

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### HMRC guidance / practice

**Scope of the relief:** APR is due to the extent that the value transferred is attributable to the **agricultural value** of agricultural property. It can also apply to **shares or securities** in a company where the transferor had control, the agricultural property formed part of the company's assets, and the company and transferor satisfied the relevant occupation/ownership tests.

**Farmhouses and cottages:** A farmhouse will qualify as agricultural property only if it is "of a character appropriate to the property." HMRC guidance directs officers to ask whether the farmhouse was the **centre of the farming operations** conducted on the land, and whether it was truly occupied for agricultural purposes. Relief is **not available** in respect of development value or residential premium above the agricultural value of farmhouses, because the primary function of the house is as a residence.

**Farm cottages:** A farm cottage is eligible for relief if (i) the occupier has the required status (typically employed for agricultural purposes) and (ii) it is of a character appropriate to the agricultural land. The connection between the residential use and agricultural purpose must be "sufficient" — assessed by reference to the nature, time, and regularity of the agricultural work.

**Tenanted land:** Whether agricultural land is subject to a tenancy affects both the **value** of the land and the **rate** of relief available (100% or 50%).

**Interaction with income tax treatment:** HMRC notes that the income tax treatment of farming activities is only an **indicator** of the purpose of occupation and is not determinative for APR purposes. Land occupied for agricultural purposes may qualify for APR at 100% or 50%, but land exploited purely for rental income may get no relief at all.

**Geographical scope:** The Valuation Office Agency (VOA) is responsible for deciding what constitutes agricultural property within the s.115(2) definition.

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