Agricultural Property Relief (APR) is a valuable type of tax relief that can help farmers and landowners pass on their agricultural assets without an expensive Inheritance Tax (IHT) bill. Designed to keep farms within families and maintain the UK’s agricultural industry, APR can reduce the IHT payable on qualifying land, buildings, and farm-related property.
However, not all agricultural assets qualify, and there are strict conditions that need to be met in order to benefit from the relief. Luckily for you, we’ve pulled together a handy guide that covers everything you need to know about APR, from eligibility rules to current APR rates – helping you to make the most of the tax savings available.
We cover common questions such as ‘what is agricultural property relief?’, ‘What counts as agricultural property?’ and ‘do you pay tax on agricultural land UK?’, to ensure that you are fully aware of everything to do with APR. Let’s get into it!
What is Agricultural Property Relief (APR)?
Agricultural Property Relief (APR) is a tax relief that helps to reduce the amount of Inheritance Tax (IHT) that needs to be paid on agricultural property, such as land, farmhouses, and certain buildings used for agricultural purposes. The relief aims to ensure that agricultural businesses can continue to operate within families, rather than being forced to sell off property to cover tax liabilities.
Who is eligible for APR?
- Outline the key criteria for claiming APR.
- Discuss who qualifies (farmers, landowners, and businesses).
- Mention the types of property that can be covered (land, buildings, farmhouses).
Agricultural relief is available to a wide range of farming individuals, but there are specific criteria that must be met in order to qualify. Generally, the relief is available to farmers, landowners, and businesses involved in the agricultural industry, but the key eligibility factors focus on the type of property and how it’s used.
To qualify for APR, the property must be used for agricultural purposes. This includes land, farmhouses, and certain buildings that are used directly in the farming business, such as barns and silos. On top of this, the property must also be owned for a minimum of two years before it’s passed on for the relief to apply. This requirement ensures that the property has been genuinely involved in agricultural activities for a sufficient amount of time.
The relief is typically available to those who actively farm the land or those who inherit qualifying agricultural assets from family members. However, if the land has been used for non-agricultural purposes or is let to others for unrelated activities, it may not qualify for APR.
What property qualifies for Agricultural Property Relief?
As we have already mentioned, property involved in farming and agriculture have the potential to qualify for inheritance tax agricultural relief. Let’s explore some of the main types of agricultural property that can benefit from APR:
- Farmland: Farmland used for agricultural purposes, such as growing crops or grazing animals, is a key asset that qualifies for APR. The land must have been owned and used for agricultural activities for at least two years.
- Farmhouses: Farmhouses occupied by the business owner or by farmworkers essential to the operation can benefit from APR. However, if the farmhouse is used for non-agricultural purposes, it may not be eligible for the full relief.
- Agricultural buildings and structures: Buildings such as barns, sheds, and silos that are used in the farming business can qualify for APR. These structures must be directly involved in agricultural activities, such as storage or housing livestock, and cannot be used for non-agricultural purposes.
- Woodland used for agricultural purposes: Woodland that is part of an agricultural business, such as land used for grazing or growing crops, may qualify for APR, provided it is an integral part of the agricultural operation.
- Agricultural equipment and machinery (under certain conditions): In some cases, agricultural equipment and machinery used directly for farming activities may be eligible for APR. This is usually only eligible if they are considered essential to the farming business.
What is agricultural value and why is it important?
Agricultural value refers to the value of a property based on its potential for agricultural use, rather than simply its market value. This means that the property’s worth is determined by its ability to generate income through farming activities, such as growing crops, grazing livestock, or other agricultural ventures. The agricultural value takes into account factors such as the quality of the land, its productivity, and the suitability of the property for agricultural use.
For example, the market value of 50 acres of rural farmland might be £20,000 per acre, making the total value £1,000,000. However, the agricultural value of this land might only be £12,000 per acre – with a total value eligible for APR of £600,000.
The agricultural value of a property is important in determining eligibility for Agricultural Property Relief (APR) and in the calculation of how much relief can be granted. This is because APR is intended to protect agricultural land and property from high inheritance tax (IHT) liabilities when they are passed down to heirs. The more the property is used for agricultural purposes, the more likely it is to qualify for APR.
Current APR rates
Currently, there are two different levels of agricultural relief. Depending on the type of agricultural property and the relationship between the landowner and the land, you can either qualify for 100% APR relief (where the full value of the property to be exempt from inheritance tax when passed on to heirs) or 50% APR relief.
Who qualifies for 100% relief?
100% relief is available for landowners who meet specific criteria, including:
- Owner-occupied farms: Land must be owned and used for farming activities such as crop cultivation or rearing livestock.
- Agricultural buildings: Farmhouses and other buildings that are part of the business and occupied either by the owner or essential workers on the farm.
- Land actively used for farming: The land must be used in a way that is essential to the farming business, with no intention for development or non-agricultural use.
Who qualifies for 50% relief?
For those that don’t qualify for 100% relief, APR also offers 50% relief. This 50% relief applies to certain properties that do not meet the owner-occupation criteria for full relief, including:
- Tenanted agricultural land: If agricultural land is leased to tenants and still used for farming, it may qualify for 50% relief.
- Mixed-use properties: If the property has both agricultural and non-agricultural uses (such as residential or commercial elements), the agricultural portion of the property may qualify for 50% relief.
- Non-qualifying agricultural buildings: Certain agricultural buildings that are rented out or have mixed-use purposes may also qualify for 50% relief.
Recent changes to APR rates
In the 2024 Autumn Budget, the Labour Government announced that the 100% relief on agricultural property would be capped at £1,000,000. For any assets exceeding the £1,000,000 limit, 50% relief would be applied thereafter. Despite negative reactions from members of the opposition, the government has maintained that the majority of estates claiming APR won’t see any impact from these changes. However, HMRC has estimated that 2,000 estates will pay more tax following the change.
Conditions and time requirements for APR
Agricultural Property Relief has specific conditions regarding ownership and occupation that landowners must meet to qualify. These requirements ensure that APR is applied to properties that are genuinely used for agricultural purposes.
The two-year ownership rule
To qualify for APR, land must have been owned by the individual for at least two years before it can benefit from full relief. This ensures that the land is held long enough to be considered part of an ongoing farming business. However, if the land is transferred as part of a farm succession plan, there may be exceptions under certain conditions.
The seven-year rule for let land
For land that is let to tenants, a seven-year ownership period is required to qualify for APR. This rule ensures that the landlord has maintained ownership of the land long enough to be considered part of a farming business, even if the land is being rented out. The period begins from the time of ownership, and during this time, the land must have been continuously used for agricultural purposes.
Does Agricultural Property Relief still apply to diversified farms?
APR can still apply to farms that have diversified into non-agricultural activities (such as holiday lets or farm shops), however the level of diversification will impact the relief. If the diversification activities are substantial, they might reduce the agricultural value and lower the amount of APR available.
For example, a farm that has a holiday let on its premises could still benefit from APR on the land that is primarily used for farming, but the relief would not apply to the property used for the non-agricultural activity.
How does APR and tenanted land work?
There are significant differences in Agricultural Property Relief eligibility for owner-occupied versus let land.
- Owner-occupied land: The landowner must use the property for farming and meet the two-year ownership rule to qualify for 100% APR relief.
- Let land: For land that is let to tenants, relief is still possible, but the rules are different. To qualify, the land must have been let for a minimum of seven years and the tenants must continue to use the land for farming.
The Agricultural Holdings Act 1986 and Farm Business Tenancies
The type of tenancy agreement in place can also affect APR eligibility. Under the Agricultural Holdings Act 1986, tenants may be able to qualify for APR on land they lease from the landowner. This is especially relevant for older tenancies.
However, if a landowner and tenant have entered into a Farm Business Tenancy, the tenant may still be eligible for APR, depending on the specific terms of the agreement and how the land is used. These tenancies allow the land to remain in agricultural use while providing tenants with certain rights to run their farming business.
How to Apply for Agricultural Property Relief
Claiming APR is a structured process, and understanding the key steps is essential to ensure that the tax relief is applied correctly. To apply for Agricultural Property Relief, landowners must complete the appropriate paperwork and submit the necessary forms when handling an estate.
It’s important to provide relevant documentation to HMRC, including proof of ownership and occupation, as well as evidence that the property is used for agricultural purposes. This could include things like farm business accounts or agricultural tenancy agreements.
It’s important to be aware of common reasons for HMRC to challenge or reject claims, for example:
- Insufficient evidence of agricultural use
- Inconsistent ownership records
- Non-agricultural use
How does APR differ from Capital Allowances?
While both Agricultural Property Relief and Capital Allowances are forms of tax relief, they serve different purposes.
- Agricultural Property Relief: Designed to reduce Inheritance Tax on farm land. It applies to land and buildings that are used for farming, offering relief from IHT when the property is passed on to heirs.
- Capital Allowances: Reduces Income Tax or Corporation Tax by allowing farmers and landowners to claim relief on certain capital expenditure, such as the cost of machinery or farm equipment.
Through separate reliefs, both APR and Capital Allowances can be beneficial to landowners and farmers.
How can Eureka Capital Allowances help?
Eureka Capital Allowances can assist land and business owners in identifying eligible assets for Capital Allowances. Our expertise in maximising claims ensures that farmers and landowners receive the tax relief they are entitled to.
Contact Eureka Capital Allowances today to maximise your tax reliefs and ensure compliance with the latest regulations.
