Agricultural Property Relief (APR) is a relief against inheritance tax. It applies both during a person’s lifetime (if a gift of agricultural property is made) and on their death (if agricultural property forms part of their estate). Usually, agricultural property that meets the criteria has the benefit of APR at 100%, meaning that the agricultural value will be completely free from inheritance tax.
The criteria for APR to apply are quite detailed, however broadly they are that:
- The property must be agricultural in nature (for example agricultural land, buildings used in connection with the rearing of livestock, farmhouses and farm buildings that are of a similar character to the land).
- The owner of the agricultural property must either have owned and occupied it for at least two years prior to their death (or the lifetime gift), or have owned it for at least seven years prior to their death (or the lifetime gift) and someone else has occupied it during that period.
- The property must have been used for agricultural purposes during the two or seven year period referred to above (for example livestock breeding and keeping, grazing, dairy farming, fruit growing and seed growing).
- APR only applies to the agricultural value of the land, and not, for example, on the development value of the land.
The problem for some farmers is that they may be ‘winding down’ their farming activities as they get older. They may not farm the land as much as they used to, or they may think they no longer occupy the land/farmhouse for agricultural purposes (for example if someone else farms the land but has not done so for the required seven year period)
In a recent case (Charnley and another v HMRC ) HMRC argued that the farmhouse was not classed as agricultural property, because it was not used for agricultural purposes during the two years prior to the farmer’s death. Towards the end of the farmer’s life, he had scaled down his farming activities, and he no longer farmed the land attached to the property. He allowed third parties to graze livestock on the land in return for rent and the farmer’s role was largely just maintenance rather than farming.
However, the court decided against HMRC and in favour of the deceased farmer’s estate. The court looked at the background of the farmer, and decided that his occupation had always been, and remained, farming, even though his role had reduced due to his age and health. The court found that the farmer’s occupation of the farmhouse had always been for the purpose of agriculture, and the purpose of the occupation did not change, despite his farming activities being altered to take into account his age. The court also referred to a previous case (Golding v HMRC ) and reiterated that a farmer does not stop being a farmer, or stop being in occupation of the farmhouse for agricultural purposes, if the farmer gets old or sick.
The case of Charnley does provide some assistance for farmers who are considering reducing their farming activities, but it also reiterates that each case involving APR is decided on the individual facts.
If you think that APR may be relevant on your death, or if you are dealing with an estate of a deceased person where APR might apply, and you would like to discuss it with someone, please contact Fraser Brown Solicitors on 0115 9472541 (Nottingham), 01949 838439 (Bingham), 0115 9335311 (Radcliffe on Trent) or 01522 581522 (Lincoln) .