Everything you need to know about agricultural property relief and the impact of the changes announced in the Budget of October 2024.

Agricultural Property Relief (APR) is a relief from Inheritance Tax granted by the Inheritance Tax Act 1984. APR is available on gifts of land occupied for the purposes of agriculture, together with appropriate buildings and farmhouses used in conjunction with the land.

What is agricultural property?

Agricultural property is land or pasture that is used to grow crops or to rear animals intensively. It includes:

• Growing crops
• Stud farms for breeding and rearing horses, and grazing
• Short rotation coppice
• Land not currently farmed under the Habitat Scheme
• Land not currently being farmed under a crop rotation scheme
• Some agricultural shares and securities
• Farm buildings, farm cottages and farmhouses

It is important to recognise that if horses are grazing land for non-agricultural purposes, the land would be considered non-agricultural and will not be eligible for APR.

Agricultural assets which do not qualify for APR include:

• Farm equipment and machinery 
• Derelict buildings
• Harvested crops
• Livestock
• Property subject to a binding contract for sale

What is agricultural value?

Agricultural value is not necessarily market value. The agricultural value of the property is valued by assuming it were subject to a restriction which would mean that it could only be used for agricultural purposes.

For Example:

10 acres of land on the edge of a town

Market Value (potential development) £25,000 per acre = £250,000

Agricultural Value (eligible for APR)     £10,000 per acre = £100,000

Ineligible for APR                                                                  £150,000

For a farmhouse or cottage, a 30% discount on the market value is usually assumed as the agricultural value.  There is limited case law to support it so depending on the property, it might be reasonable that there should be no discount for agricultural value.

How long do I need to own or occupy land in order to qualify for APR?

The property must have been owned and occupied for agricultural purposes immediately before its transfer for two years if it is occupied by the owner, a company controlled by them or their spouse/civil partner. If the owner does not occupy the property (usually let on a Farm Business Tenancy) they need to have owned it for seven years in order to qualify for APR.

How does it apply to a farmhouse?

The farmhouse must be employed by someone working in farming, a retired employee or the spouse/civil partner of a deceased employee.

The qualification criteria for a farmhouse have been much debated in courts over the years, in particular on what is ‘character appropriate’. The farmhouse must be of a nature and size appropriate to the farming activity that is taking place.

It is also important to consider from where the farming business is operated; if the farmhouse is used as the farm office this is helpful in a claim for APR as it proves agricultural use.

HMRC also look closely at older farmers as they can choose to view the farmhouse as a ‘home for retirement’ rather than as the centre of operations for the farming business. In these cases it is often sensible to look at allowing the younger generation to occupy the farmhouse provided that they continue to run the farming business from it.

How does it apply to farm cottages?

The farm cottages must be occupied by someone employed in farming, a retired farm worker or the spouse/civil partner of a deceased farm worker. They must occupy as a tenant under a lease granted as part of their current or former employment contract, or as a protected tenant with statutory rights.

What are the current rates of APR?

APR is due at 100% if:

• The person who owned the land farmed it themselves
• The land was occupied by someone else on a short term grazing licence
• It was let on a tenancy that began on or after 1 September 1995, or there was a surrender and re-grant of an old AHA tenancy after 1 September 1995 or a succession to an AHA tenancy after 1 September 1995
• A property owned before 10 March 1981 would have qualified under Schedule 8 of the Finance Act 1975 if it had been transferred before that date
• The person had no right to vacant possession between 10 March 1981 and the date of the current transfer (e.g. Company AHAs)

Relief will be due at a lower rate of 50% in any other case. This commonly includes land let on Agricultural Holdings Act 1986 tenancies which commenced after 10 March 1981.

APR is calculated on a death, or when the asset is passed down to the next generation. APR doesn’t stop all tax being paid although with careful planning it can be mitigated. Other taxes to consider are Capital Gains Tax which should be planned for at the same time as when the subject asset qualifies for APR from IHT there is a linkage between the two taxes and holdover relief from CGT is available. It has been a reason not to pass assets down from one generation to another as CGT is rebased on death whereas on a lifetime gift the recipient (with holdover relief) takes the donors CGT base cost.

Non-traditional farmers have been buying land in recent history partly due to APR. This is not the only reason they are buying land but it has helped support the land market in the last 20 years.

The proposed changes to inheritance tax announced by the Chancellor in October 2024 will be effective from April 2026. The tax reforms will mean that agricultural property relief and business property relief will only be available on the first £1m of qualifying assets. Qualifying assets exceeding this limit will be eligible for a 50% relief. IHT will then be charged at 40% of the remaining taxable estate.

In order to mitigate the impact of the proposed changes it is important to review ownership structures. Reliefs proposed from April 2026 may not be transferable and significant savings could be made with careful planning.

If you have any additional questions, or would like some advice, please contact your local Carter Jonas office.