APR or BPR
Agricultural Property Relief (APR) takes precedence over Business Property Relief (BPR). Start by establishing whether APR applies. If it does you then need to look at whether it applies to all of your activities. In these days of diversity you may find that some of your activities qualify for APR and some do not. If some do not you will not necessarily lose APR completely but may find that some part do qualify and some do not. For those that do not you then look at whether those parts qualify for BPR. If that fials you will probably have to pay IHT.
Remember that to qualify for APR the farm must be occupied for the purposes of agriculture throughout a period of 2 years ending with the date of death. The taxpayer must still be engaged in farming at the time of their death with a genuine input into the decision making process by the farmer. (The only alternative is for the farmhouse to be occupied by someone other than the owner and used for farming purposes for at least 7 years.)
All too often the suggestion is well it’s a farm and Mr Jones has been farming it for the last 30 years – the real question to ask is was Mr Jones farming the land for the 2 years prior to his death.
Having jumped that hurdle you can then go on to decide if the various activities can be regarded as farming and the use you make of the outbuildings are they in connection with farming activities
With farmers using so many different ideas about how to make a profit it is impossible to provide a list of everything that might come within this category and therefore benefit from APR. But here are a few activities:
- Hop growing – yes
- Breeding and rearing of horses and grazing of those horses in connection with the activity – maybe (see separate sheet on horses)
- Short rotation coppice e.g willow or poplar – probably
- Reed beds growing naturally and then cut for thatching – no (no tilling sowing or cultivating the land)
- Growing energy crops – yes
- Market gardening – generally no
- Christmas Tress – not if the sole trade as this is classified as Market Gardening but if grown on a farm then yes
- Land let for grazing of horses – no
- Cottages let for holiday lets – no
- Long term woodlands – no
- Game shooting or sporting activities – no
The Farm Buildings
The 2006 McKenna case has established a number of principles. Though every case is decided on its merits it may be helpful to set out what did qualify and what did not in that case:
- Dutch barn – allowed
- Dung Stead – disallowed
- Informal Tack Room – disallowed
- Horse Stabling – disallowed
- Storage: seasoned timber for rent – disallowed
- Storage: field troughs, gates, fencing stakes – disallowed
- Storage: creosote, hand tools, farm tools – disallowed
- Storage: cement and blocks for construction – disallowed
- Grain silo – allowed
- Storage of agricultural machinery – allowed
The Farmhouse must be of a ‘character appropriate’ to a farmhouse. So a large house that appears to the taxman to be nearer to a stately home than a farmhouse, or a very large house with insufficient land to enable a profit to be made and pay the running costs of the house could mean you lose APR and you would be unlikely to succeed with a claim for BPR.
Cottages for Agricultural Workers
Where your farm workers are occupying cottages there should be no problem. But if you move your ‘farm’ workers from agricultural activities to ones that do not qualify for APR you may lose the APR on their cottage.
Agricultural land and pasture qualify for APR. This includes woodland and any building used for the intensive rearing of livestock and fish if the woodland or building is is occupied with agricultural land and pasture and occupation is ancillary to that of agricultural land and pasture.
Agricultural Holdings Act 1986 tenancies
The Farm Business Tenancy (FBT) comes with hidden tax disadvantages – no BPR or APR on the Farmhouse and sometimes the contract farming arrangements also came under attack. Where you have a FBT only farm assets can qualify for APR (and then only at 50%) and there will also be no BPR on hope value. Most farmers have, in recent years, tried to end Agricultural Holdings Act 1986 tenancies.