Inheritance Tax (IHT) is a pressing concern for farmers and landowners who wish to preserve their agricultural legacy for future generations. One of the key mechanisms for mitigating this tax burden is Agricultural Property Relief (APR). However, an essential criterion for claiming APR is proving the “agricultural use” of the property in question.
At Blackstone Solicitors, we understand that this requirement can be complex and sometimes contentious. In this article, we will guide you through the concept of “agricultural use,” its implications for APR eligibility, and practical steps to strengthen your claim.
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What Is Agricultural Property Relief (APR)?
APR provides relief from IHT on the agricultural value of qualifying property, potentially reducing the tax burden by up to 100%. It applies to assets such as:
- Farmland and pastures
- Farmhouses and cottages integral to agricultural operations
- Woodland or buildings used in farming
However, to qualify, the property must be used for agricultural purposes and meet the relevant ownership and occupation conditions.
Understanding “Agricultural Use”
The term “agricultural use” is central to APR eligibility but can often be misunderstood. Broadly, it refers to activities directly related to the cultivation of land or rearing of animals for food production. Examples include:
- Growing crops such as cereals, vegetables, or fruit
- Grazing livestock, including cattle, sheep, and goats
- Breeding and rearing farm animals, such as poultry or pigs
Activities That May Not Qualify
Not all land use automatically qualifies as “agricultural use.” Common examples of non-qualifying activities include:
- Equestrian activities, such as horse riding or racing
- Land used for leisure or tourism, such as glamping sites
- Renewable energy projects not integral to farming (e.g., solar farms not powering the farm)
If a property has mixed use, only the portion directly involved in agriculture may qualify for relief.
The Role of Evidence in Proving Agricultural Use
Demonstrating agricultural use is essential to securing APR. HM Revenue & Customs (HMRC) will scrutinise how the land and buildings are used, and a lack of clear evidence can jeopardise your claim.
Types of Evidence to Provide
- Farm Records: Keep detailed records of farming activities, including planting schedules, harvest yields, and livestock numbers.
- Contracts and Agreements: Provide tenancy agreements, grazing licences, or supplier contracts that demonstrate agricultural operations.
- Financial Records: Maintain receipts and invoices for farming-related expenses, such as feed, seed, or equipment purchases.
- Photographic Evidence: Periodically document the land and its use, showing crops, grazing livestock, or other agricultural activities.
Farmhouses and Agricultural Use
Farmhouses are often a contentious area in APR claims. To qualify, a farmhouse must be:
- Of a character appropriate to the farming operation
- Occupied by someone substantially involved in running the farm, such as a working farmer or farm manager
Careful documentation linking the farmhouse to the agricultural use of the surrounding land can strengthen your case.
Ownership and Occupation Requirements
In addition to proving agricultural use, the property must meet specific ownership and occupation conditions:
- Ownership Period: The property must have been owned for at least two years (if occupied by the owner) or seven years (if let to a tenant) prior to a qualifying event, such as death.
- Occupation by a Farmer or Tenant: The property must be occupied for agricultural purposes during the relevant period.
Failing to meet these requirements, even if the property is used agriculturally, can disqualify it from APR.
Mixed-Use Properties: Challenges and Opportunities
Many farms now diversify their income streams by engaging in non-agricultural activities, such as tourism or renewable energy. While diversification can make the business more sustainable, it may complicate APR eligibility.
Proportionate Relief
For mixed-use properties, APR may only apply to the portion of the property used for agricultural purposes. For example:
- A farm with a glamping site may only qualify for APR on the farmland and agricultural buildings.
- A property with a solar farm may need to show how much of the energy generated is used for farming purposes to determine eligible relief.
Segregating Uses
To maximise APR, consider clearly segregating agricultural and non-agricultural activities. This could involve:
- Maintaining separate financial records for farming and diversified operations
- Using clear boundaries to distinguish agricultural land from other uses
- Structuring ownership to preserve APR eligibility for core farming assets
Potential Reforms to APR
As part of broader inheritance tax reviews, the government has periodically considered reforms to APR. Possible changes could include:
- Narrowing the definition of agricultural use
- Imposing stricter eligibility criteria for farmhouses
- Aligning APR with Business Property Relief (BPR)
While no reforms are currently enacted, staying informed and proactive in your estate planning is essential to mitigate potential risks.
Practical Steps to Strengthen Your APR Claim
To maximise your chances of securing APR, take the following steps:
- Conduct Regular Reviews
Periodically review your property’s use, ownership structure, and documentation to ensure compliance with APR requirements. Engage a solicitor to identify and address potential vulnerabilities in your claim.
- Maintain Clear Records
Keep comprehensive records of all agricultural activities and ensure they are easily accessible. This includes financial statements, tenancy agreements, and photographic evidence.
- Seek Professional Advice for Diversified Businesses
If your farm includes non-agricultural activities, consult a solicitor to structure your operations in a way that maximises relief. For example, separating agricultural and non-agricultural assets into different entities may preserve APR eligibility.
- Plan Succession Carefully
Effective succession planning is vital to securing APR. Ensure that property transfers, whether during your lifetime or upon death, meet the relevant ownership and occupation conditions.
Case Study: A Successful APR Claim
The Brown family owns a 150-acre farm, including arable land, a farmhouse, and a small farm shop. They were concerned about how diversification might affect their APR claim. With our assistance:
- They documented all farming activities, including planting schedules and crop yields.
- They provided evidence that the farmhouse was occupied by Mr Brown, who actively managed the farm.
- They segregated the accounts and operations of the farm shop from the core agricultural business.
As a result, they successfully claimed APR on the farmland and farmhouse, while the farm shop qualified for Business Property Relief (BPR).
Conclusion
The concept of “agricultural use” is pivotal in determining APR eligibility, and understanding its nuances is essential for effective inheritance tax planning. By maintaining clear documentation, meeting ownership and occupation requirements, and seeking professional advice, you can protect your agricultural assets from unnecessary tax burdens.
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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