Last year, the Office for Budget Responsibility informed us that the number of estates on which Inheritance Tax (‘IHT’) was payable reached a 35-year high. This has been forecasted to continue to rise until the introduction of the ‘Residence Nil Rate Band’ (‘RNRB’) in April this year. The RNRB will eventually present each person an opportunity to receive an extra £175,000, by April 2020, to offset against their estate if they leave a residential property to lineal descendants. As a farmer or business owner, understanding the tax reliefs available to you is important.

For farmers and business owners, agricultural property relief (APR) and business property relief (BPR) are valuable reliefs potentially available. Both of these reliefs can be available at either 50% or 100%. If they apply, IHT payable is reduced by these amounts.

There are nuances in the application of APR and BPR.

Beginning with APR, farm shops and even grazing horses can prevent the application of APR:

• With the farm shop, for example, if it had been previously used as a barn or store for farm equipment, then APR would probably have been available at 100%. However, if the building used for the farm shop was additional to requirement, or, for example, completely derelict, it would not qualify for APR.  If under these circumstances, a derelict building was converted into a shop, the shop must be used for agricultural purposes only which would entail the farmer selling predominantly his or her own produce. Even then, it would not be guaranteed that APR would be available at 100%.

• In relation to grazing horses, again, it would be expected that land used for the grazing of horses would qualify for 100% APR. However, any such land is only able to qualify for APR at a rate of 100% if used for agricultural purposes.  This would only include, for example, if the horses were being bred for food, used in the cultivation of food, or if the horses were bred and reared on a stud farm.  There are further requirements for APR to apply at 100%, for example, for a stud farm to qualify, proof of profit must be provided along with proof of sales and advertising. Liveries do not qualify for APR.