IHT Planning for Farmers

Agricultural Property Relief

Assets that qualify for Agricultural Property relief can be passed to your beneficiaries free of inheritance tax in your lifetime or on your death.

This is a very generous type of relief that is in place to ensure farming businesses can be passed through the generations without having to sell the assets to pay any unwanted IHT bill.

However, the rules surrounding this are very complicated and advice should be taken to ensure your farming assets can be passed to your loved ones free of any inheritance tax.

Many farms are now run via a “farming contract” and this creates a level of complexity when deciding if assets should qualify for agricultural property relief.

Some examples of when agricultural property relief should apply to your farming assets are detailed below:

The Farmhouse – For the farmhouse to qualify for agricultural property relief it should be the hub of the farm where all farming operations are carried out. It should also be character appropriate and occupied by the farmer.

Farm Cottages – Farm cottages only qualify for agricultural property relief if lived in by farmworkers for the purpose of running the farming business. They also have to be character appropriate. Many farmers that now run their farms via a “farming contract” have converted the cottages to long term rental property or short term holiday lets. For inheritance tax purposes this would mean that these properties don’t qualify for agricultural property relief.

Agricultural Land – Agricultural property relief should be available on land that that is used to grow crops or feed livestock. It is not an “all or nothing” requirement and so farmers should be aware that agricultural property may not be available on land that isn’t being used in the farming business.

Farm Buildings – Derelict buildings that are no longer used in the farming business will not qualify for agricultural property relief. Each building needs to be assessed and it will have to meet certain criteria to be classed as fully operational and eligible for agricultural property relief.

Where property doesn’t qualify for agricultural property relief it may qualify for another type of relief from inheritance tax called “business property relief”. An example would be where a farmer has set up a commercial quad biking venture on land that was previously used for farming.

Timing is one of the most important things to consider when ensuring assets qualify for agricultural property relief. Property has to be owned and operated for a specific period of time before it qualifies.

At Elite we have helped many of our farming clients to review their affairs and create an inheritance tax planning strategy. Especially where the farm is now operated under a farming contract or some of the assets are no longer used for farming purposes.

HMRC are frequently challenging cases where agricultural property relief has been claimed on an estate but the position is not clear cut.