Agricultural Property Relief (APR) has historically allowed farmers to pass businesses between generations whilst avoiding tax.

The new APR cap introduced in April means some farmers might face Inheritance Tax (IHT) bills for inheriting an agricultural business.

A key issue for farmers is that the value of agricultural assets might take them over this nil-band threshold, but they do not have the cash to pay tax liabilities.

If you are trying to pass down a family farm you want to avoid having to sell land, property or machinery to meet tax bills.

What is APR & why are farmers worried?

The changes to Agricultural Property Relief (APR) have capped 100 per cent relief at £2.5 million.

Anything over this threshold is taxed at a reduced rate of 50 per cent, which will effectively incur an inheritance tax of 20 per cent.

How it differs to Business Property Relief is that APR generally applies to the agricultural value of qualifying property.

For example, if land has a development value of £25,000 per acre but an agricultural value of £10,000 per acre, APR might only cover the agricultural value.

Rising land values increase potential IHT exposure for farmers, so there becomes a real risk of selling productive assets just to cover a tax liability.

While a family farm might be worth several million pounds but generates modest annual profits, it could exceed the APR threshold and sustain a hefty IHT bill.

Could a forced asset sale be avoided

If a family farm was selling farmland or disposing of machinery, this could break up long-established businesses.

Expensive industrial equipment is often needed for everyday farm duties, so forced sales of these assets can significantly reduce profitability.

For example, if a farm had to sell their most productive acreage, their annual crop output falls alongside their profits.

The fixed costs might remain largely unchanged despite farming a smaller area of land, leading to the cost per acre to rise.

This land sale might have squandered chances to sell it for development and will mean the next generation will inherit a less viable business.

Aside from finances, the forced sale of assets can carry with it a deeply emotional impact.

Families see a farm that has been intact for generations suddenly become fragmented, creating the feeling that a lifetime’s work has been torn apart.

Follow-up

If you are worried about the impact of the changes to APR and your farm’s IHT exposure, reach out to our rural accounting specialists.

We can help you review your succession plans and evaluate your APR eligibility to develop strategies to protect your farming business.

The forced sale of farming assets can have disastrous consequences for agricultural businesses, so reach out today to plan your succession.

Get in contact today.