Chapter: 2 - Inheritance Tax Mitigation: The Basics

Agricultural property relief

2.5.3

(a)   'Agricultural property'
This is defined as (1) agricultural land or pasture; (2) woodland and buildings used for intensive rearing of livestock or fish, if the occupation of the woodland or building is ancillary to agricultural land or pasture; and (3) such cottages, farm buildings and farm houses together with their land as are ‘of a character appropriate’ to the property (IHTA 1984 s115(2)). The agricultural property must be situated within the EEA (or, in cases where tax was paid or due before 23 April 2003, within the UK, the Channel Islands or the Isle of Man).  A controlling interest in a farming company will also attract APR.

(b)   The occupation or ownership test
The deceased must have occupied the agricultural property for agricultural purposes for at least two years, or must have owned the agricultural property for at least seven years, with continuous occupation by someone for agriculture (IHTA 1984 s117). There are reliefs for replacement of property within that period and for property inherited on the death of a spouse/civil partner (IHTA 1984 ss118 and 119).

(c)   Rate of relief
The rate is 100% if (IHTA 1984 s116):
• the deceased has vacant possession, or the right to obtain it within 12 months (24 months by concession) after his death – had he survived;
• the deceased had owned his interest in the land since before 10 March 1981 and would have been entitled to the old ‘working farmer’ relief from CTT, with no right to vacant possession since then; or
• the deceased was the landlord of a tenancy commencing on or after 1 September 1995.

Otherwise, the transfer will attract only 50% relief, typically where he is the landlord of property let under a tenancy granted before 1 September 1995 under which he does not have the right to get vacant possession within 24 months.

(d)   'Agricultural value'
APR is given not on the market value of the property (like BPR), but on the ‘agricultural value’ only; this presumes that the property is subject to a perpetual covenant prohibiting non-agricultural use (IHTA 1984 s115(3)). District valuers have been using this to argue for a discount of one-third on the market value of the farmhouse, with support from the October 2005 Lands Tribunal decision in Lloyds TSB (as personal representative of Antrobus deceased) v IRC, under reference DET/47/2004.