There are a number of reliefs available that can reduce liability to IHT. The most relevant for farmers is the Agricultural Property Relief (APR). Relief is available at a rate of 100% or 50% depending on who farms the land and how long the land has been owned.
The APR can be claimed on assets including:
- farming land or pasture that is used to grow crops or to rear animals intensively,
- working farmhouses,
- farm workers’ cottages, barns and stud farms.
There is no agricultural relief for farm equipment, but the equipment itself may qualify for another relief known as business relief.
The APR is available for working farms in the UK, Channel Islands, the Isle of Man or the European Economic area. It is important to note that the relief is based on the agricultural value of the land. For example, a farmhouse is valued as if it could only be used for agricultural purposes rather than open market value. The valuations of farmhouses in particular is often the subject of debate.
It is important to ensure that any claim for APR is realistic as HMRC’s refusal to accept an APR claim could result in a significant amount of IHT being due together with the possibility of penalties being levied. There can also be issues where the farming business has diversified into non-farming activities such as wind farms, holiday lettings and farm shops.