How Can You Benefit From Agricultural Relief?

Posted:30th November 2022

Agricultural Relief (AR) is a tax relief that allows you to pass on agricultural property to loved ones without having to pay Inheritance Tax. Agricultural property can include land & woodland, cottages, farm buildings, and farmhouses that are “character appropriate” to the agricultural land.

The Inheritance Tax relief is available on the “agricultural value” of the property. We will explain this in more detail below.

To qualify for AR, the property must have been either:

  1. Occupied by the deceased for the purposes of agriculture for 2 years prior to death; or
  2. Owned by the deceased through the 7 years prior to death and occupied by any person for the purposes of agriculture.

What is Considered a Farmhouse?

There is no specific definition in the law that explains what exactly a farmhouse is, but generally speaking, HMRC wants to know that the farmhouse is genuinely part of the agricultural land. The farmhouse is an ancillary aspect of APR, as the land itself should be the dominant feature.

However, the farmhouse should be an appropriate size, layout, style, and quality of construction that fits with the rest of the farmland and buildings on the property. The farmhouse must also be in proportion to the size and nature of the farming activities conducted on the land.

In addition, for the farmhouse to qualify for AR, the farmer who lives in the farmhouse should actively farm on the land on a daily basis and be hands-on. There should be an objective connection between the occupation and the farmhouse & the agricultural activities on the land.

A person who leaves an agricultural property vacant may not be considered to actually occupy it. Vacating a property for remedial work, or because of ill health, might put the availability of relief at risk. This is judged on a case-by-case basis.

What is Agricultural Value?

The “agricultural value” is the value of the agricultural property based on it only being used for agricultural purposes.

This means that the value must not be calculated based on any other alternative uses of the property. In many cases, the market value may be more than the agricultural value, and the difference may be changed to inheritance tax.

What Relief Rate will I get?

There are 2 different rates and relief available. The higher rate of 100% and the lower rate of 50%.

HMRC will look first that the property is a qualifying agricultural property occupied for agricultural purposes. They then look to confirm the occupation of ownership conditions are met including that the property is not subject to a binding contract for sale. Then finally they establish the rate of relief due.

Remember, Business Relief may be available on interests where Agricultural Relief is not.