At Blackstone Solicitors, we understand that managing your estate and minimising tax liabilities is crucial to safeguarding your legacy. For farmers and landowners, two significant reliefs from Inheritance Tax (IHT) are Agricultural Property Relief (APR) and Business Property Relief (BPR). While both aim to reduce the tax burden on passing assets to the next generation, they apply in different contexts and have distinct eligibility criteria.
In this article, we explain the key differences between APR and BPR to help you understand how these reliefs might apply to your estate and how you can maximise their benefits.
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What is Agricultural Property Relief (APR)?
Agricultural Property Relief is a relief specifically designed to reduce the IHT burden on agricultural property. It applies to the agricultural value of qualifying assets, allowing them to be passed on tax-free, either during your lifetime or as part of your estate upon death.
Key Features of APR:
- Scope: APR applies exclusively to assets with an agricultural character, such as farmland, farmhouses, and agricultural buildings.
- Relief Amount: Qualifying property can receive relief at either 100% or 50%, depending on the circumstances.
- Eligibility: The property must be used for agricultural purposes and meet specific ownership or tenancy requirements.
What is Business Property Relief (BPR)?
Business Property Relief is a broader relief that applies to business assets, not limited to agricultural property. It is available for businesses and shares in trading companies, offering a tax-efficient way to pass on business interests.
Key Features of BPR:
- Scope: BPR covers assets used in a trading business, which can include farms, shares in companies, and certain land and machinery used for trading purposes.
- Relief Amount: Like APR, BPR offers relief at 100% or 50%, depending on the type of asset.
- Eligibility: The business must be actively trading and not predominantly involved in investment activities.
Comparing APR and BPR
While both APR and BPR provide valuable reliefs from IHT, they serve different purposes and have unique eligibility criteria. Below, we highlight the key differences:
- Type of Property Covered
- APR: Applies only to assets with an agricultural character. This includes farmland, agricultural buildings, and farmhouses (provided they are of a character appropriate to the land).
- BPR: Applies to a wider range of business assets, including trading businesses, shares in companies, and some assets used in business operations.
- Agricultural vs Business Use
- APR: Requires that the property be actively used for agricultural purposes, such as crop production or livestock grazing.
- BPR: Focuses on business use, requiring the business to be actively trading. Farms that diversify into non-agricultural activities, such as tourism or renewable energy, may fall under BPR rather than APR for certain assets.
- Ownership and Occupation Requirements
- APR: The property must be owned and occupied for agricultural purposes for at least two years before death if owner-occupied or seven years if let to another party.
- BPR: The business or asset must have been owned for at least two years prior to the transfer or death.
- Relief Amounts
- APR: Typically offers 100% relief on owner-occupied farmland and certain tenancies. For farmhouses and other assets, relief may be limited to 50%.
- BPR: Provides 100% relief on most trading business assets and 50% relief on assets like shares in listed companies or land let for trading purposes.
- Development Potential
- APR: Applies only to the agricultural value of the property, which excludes any increase in value due to development potential or alternative uses.
- BPR: Covers the full market value of business assets, including any potential for future development, provided the business is trading.
Examples to Illustrate Differences
Example 1: A Traditional Farm
A farmer owns 100 acres of farmland, a farmhouse, and several barns, all actively used for agricultural purposes. The farm would likely qualify for APR, with 100% relief on the farmland and agricultural buildings, and potentially 50% relief on the farmhouse, provided it is of a character appropriate to the land.
If the farmer also owns equipment and machinery used for farming, these assets could qualify for BPR if the farming operation is considered a trading business.
Example 2: A Diversified Farm
A farmer owns a farm but has diversified into renewable energy production, operating a solar farm on part of the land. The farmland used for crop production may qualify for APR, but the solar farm, as a non-agricultural activity, would not.
However, the solar farm could qualify for BPR if it is part of a trading business. In this case, it is essential to differentiate between the agricultural and non-agricultural parts of the operation.
Example 3: Investment Land
A farmer owns land that has been let out for grazing under a tenancy agreement. If the land is used for agricultural purposes and meets the seven-year ownership requirement, it may qualify for APR. However, if the land is not actively farmed or is let for non-agricultural purposes, APR may not apply. BPR may also be unavailable if the land is not part of a trading business.
Practical Steps You Can Take
To maximise the benefits of APR and BPR, consider the following:
- Document Agricultural and Business Use: Maintain detailed records of how your assets are used.
- Review Ownership Structures: Ensure that assets are held in a way that optimises eligibility for relief.
- Plan for Diversification: If your farm includes non-agricultural activities, seek advice on how to structure these to qualify for BPR.
- Seek Professional Advice: Work with a specialist solicitor to navigate the complexities of APR and BPR.
Conclusion
Agricultural Property Relief and Business Property Relief are powerful tools for reducing Inheritance Tax, but understanding their differences and eligibility requirements is essential. At Blackstone Solicitors, we are committed to helping farming families across England and Wales protect their legacies and achieve their estate planning goals.
We have a proven track-record of advising upon all aspects of private client work. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.to incorporate, what kind of ownership
How to Contact Our Private Client Solicitors
It is important for you to be well informed about the issues and possible implications of drafting a Will and setting up a Trust. However, expert legal support is crucial in terms of ensuring a positive outcome to your case.
To speak to our Private Client solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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