By Naomi Woods
Will I have to pay tax on my assets when I die if I own farmland?
Depending on your individual circumstances, your estate may be applicable for Agricultural Property Relief (APR), amongst other types of reliefs and exemptions.
Currently, each person has a basic allowance for inheritance tax of £325,000. There are additional reliefs available, for example if you are married and are passing property to direct descendants.
However, for many farmers and landowners, the value of their land and business far exceeds this basic threshold. At face value, estates then have an inheritance tax liability of 40% of their net worth above the threshold. Nevertheless, your solicitor can examine any other reliefs to ensure you can mitigate any additional inheritance tax, including APR.
What is APR and when does it apply?
APR is given on the value of UK agricultural property that has been:
- Owned and occupied by the owner for the purposes of agriculture for at least two years ending with the date of death; or
- Owned by you for seven years ending on that date, and occupied throughout, by you or someone else, for the purposes of agriculture. This usually means where the land is tenanted.
- Depending on the circumstances, APR is available at two rates – either 50% or 100%.
- Your executors will be able to claim 100% relief if:
- You have exclusive use (vacant possession) of the property or land because you occupy it yourself, or you have a right to vacant possession within 12 months under the terms of any lease or licence;
- The land is let, and the tenancy started on or after 1 September 1995; or
- The land is let, and certain conditions are met.
In all other cases, the 50% relief is available. However, as this relief only applies to land, there may be instances where Business Property would apply on deadstock, for example.
How does the law define ‘Agricultural Property’?
Agricultural property essentially refers to any agricultural land or pasture. However, this definition can also include:
Woodlands and buildings are not automatically regarded as agricultural property, however if they are used in a way that is ancillary to farming activities, then APR might be available. Instead, Woodlands Relief and/or Business Property Relief may apply if the woodlands to do not meet the criteria for APR.
If you are responsible for the upkeep of grazing land that is utilised for ‘agricultural purposes’, then the relief might apply.
Cottages, farm buildings and farmhouses, (together with any land occupied with them)
Where APR includes cottages, farm buildings and farmhouses, they must be of a character appropriate to the property, that is proportionate in size and nature to the requirements of the farming activities conducted on the agricultural land in question (Starke and Another v IRC ).
There are various factors to consider when determining whether a farmhouse is ’character appropriate’.
When your executors are looking to make a claim for APR on the family home, then they need to pay careful consideration to the facts, while seeking assistance from a RICS Accredited Surveyor where possible.
If APR does not apply, in some limited cases BPR may apply instead, if the circumstances meet the conditions for relief.
What are ‘agricultural purposes’?
There is no explicit definition of what use qualifies as for the ‘purposes of agriculture'.
HMRC states that ‘agricultural purposes’ include:
- Cultivation to produce food for human and animal consumption;
- Use to support livestock kept to produce food for human consumption;
- The keeping of such other animals as may be founds on an ordinary farm;
- Land set aside for permanent or rotational fallow; and
- Cultivation of short rotational coppice.
It can also include the breeding and grazing of racehorses on a stud farm.
Land used occasionally for other purposes can also be classed as having ‘agricultural purpose’.
Will the tax relief apply to the whole of the value of the land?
The agricultural value of property is the value that would apply if the property were subject to restrictions that prevent its use otherwise than as agricultural property.
Agricultural land that has been granted planning permission is valued for APR as if that planning does not apply. The agricultural value is usually lower than market value in these circumstances so APR may not apply to the whole value of the land.
How can our experts help?
Our Private Wealth team can help you mitigate tax on your estate and help you to plan for a better future for you and your loved ones.
The information above does not constitute as legal advice. You should not take action or omit to take action based on this information.
If you require any help on the issues raised above, please get in touch using the details above.