APR – A welcome extension?

Agricultural Property Relief (APR) is a relief from inheritance tax. As long as the provisions for the relief are met, APR reduces the tax liability of gifts of agricultural property by reducing its agricultural value. Regardless of whether the gift is made inter vivos or on death, the rate of relief is usually 100% of the agricultural value of the property. However, this changes if the agricultural property is subject to a tenancy that started before 1 September 1995, where relief is only 50%.

Currently, to qualify for APR, the land must be used for growing crops or rearing animals, but this definition is interpreted widely. It also includes trees that are planted and harvested at least every 10 years (short-rotation coppicing); land that is not currently being farmed but it is under the Habitat Scheme, or which is being farmed under a crop rotation scheme; some agricultural shares and securities, as well as farm buildings, farm cottages and farmhouses.

The government intends to extend APR to cover certain environmental activities from next year. It has confirmed that APR will extend to land that is managed under an environmental agreement with the UK government, or on behalf of the government, devolved administrations, local authorities, or approved responsible bodies. The Country Land and Business Association (CLA) points out some potentially positive outcomes: first, agricultural land will continue to benefit from APR after finishing an environmental agreement if the land continues to be managed consistently with the agreement; second, if land is in an environmental agreement or enters into one, it can qualify for APR as long as death or a gift triggering inheritance tax does not occur until after 6 April 2025.

It is unlikely that APR can be stretched further to reach business property relief (BPR). The government has stated that it does not intend to change the rules of BPR, which is bad news for landowners who have already diversified into residential, commercial and holiday lettings. It could also be bad news if government policy moves towards environmentally connected APR and creates an imbalance. Additionally, the current proposal for the extension of APR must include participation in private markets, rather than remaining linked only to government environmental agreements. So far, it appears that the government is not contemplating that.

In conclusion, the extension of APR linked to environmental activities is positive if accompanied by moderation. It will do no favours to diversification if agricultural land becomes dependent on environmental government contracts to benefit from APR, or if the government ends up building a monopoly that it will not share with private enterprises.

For more information on APR, contact Frank Smith & Co Solicitors on 01242 801 748 or www.franksmithandco.com.

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