Farmers have been hitting the headlines of late following the October 2024 Budget announcement that the rate of agricultural property relief and business property relief will be cut from April 2026 so that the 100% rate will only apply to the first £1 million of combined business and agricultural property from that date. In excess of this, the relief will be given at a rate of 50% – equivalent to an inheritance tax (IHT) charge of 20%. Farmers will continue to benefit from the nil rate band and residence nil rate band as for other taxpayers, meaning a couple can leave a farm worth up to £3 million free of IHT, as long as it includes a farmhouse worth at least £350,000 and neither partner’s estate is worth more than £2 million.

APR

Agricultural property relief (APR) is an IHT relief that allows agricultural property to be passed on free of IHT where the qualifying conditions are met. The relief applies where agricultural property is passed on during the individual’s lifetime or on their death.

The property must be part of a working farm in the UK that is owner occupied or let. The property must have been occupied for agricultural purposes immediately before the transfer for two years if occupied by the owner, a company controlled by them, or their spouse or civil partner, or for seven years if occupied by someone else.

Relief is given at the rate of 100% (subject to the cap applying from 6 April 2026 where the person who owned the land farmed it themselves, the land was used by someone else on a short-term grazing licence or it was let on a tenancy that commenced on or after 1 September 1995.

What counts as agricultural property?

For the purposes of APR, agricultural property is land or pasture that is used to grow crops or to rear animals. It also includes:

· growing crops;

· stud farms for breeding and rearing horses;

· short rotation coppice (trees that are planted and harvested at least every ten years);

· land currently not being farmed under the Habitat Scheme;

· land currently not being farmed under a crop rotation scheme;

· the value of milk quotas associated with the land;

· some agricultural shares and securities; and

· farm buildings, farm cottages and farmhouses.

It is important to note that to qualify for the relief, buildings must be of a size and nature appropriate to the farming activity. Farm cottages and the farmhouse must be

occupied by someone employed in farming or by a retired farm worker or the spouse or civil partner of a deceased farm worker.

Buildings are valued on the basis of their use for agricultural purposes. Any value in excess of this, for example, as a country residence, does not qualify for APR.

Exclusions

Farm equipment, derelict buildings, harvested crops, livestock and any property subject to a binding contract for sale does not count as agricultural property, so does not qualify for APR. However, business property relief may apply where the associated conditions are met.