Farmers seek clarity on Agricultural Property Relief

By Heather Bright, Partner and ARA specialist 

Farmers across the country have spoken with concern about how potential tax changes might affect their eligibility for Agricultural Property Relief (APR) from Inheritance Tax (IHT).

Currently, APR provides relief from IHT on agricultural land or property. However, when farmland is repurposed for environmental commitments, there is a risk it might no longer qualify for APR.

This could expose farmers to a 40 per cent tax charge on the value of the affected land and potentially, depending on the proportion of land taken out of agricultural use, also affect the eligibility of the farmhouse and buildings for APR.

With the agricultural sector improving its environmental sustainability models, this potential charge is deemed to be unfair and fighting against the broader campaign to become greener.

In response to this issue, a consultation announced in the Spring Budget is exploring whether APR should be extended to land being used for environmental purposes.

Farm and rural leaders, including the NFU, are calling for clarity on this issue. They argue that any land entered into Environmental Land Management (ELM) schemes, or equivalent schemes in other countries in the UK, should be treated as remaining within agricultural use, and therefore maintaining its eligibility for APR.

There are also discussions about the potential use of Business Property Relief (BPR) for land being used for environmental commitments. This could provide an alternative form of relief, especially if it forms a smaller part of a larger agricultural business.

However, it is important to strike a balance between promoting environmental sustainability and maintaining food security. The NFU warns against extending APR too widely beyond ELMs, as this could encourage private investors to buy farmland and take it entirely out of production, which could affect the UK’s food security.

Other organisations, including the Tenant Farmers’ Association (TFA) and the Central Association for Agricultural Valuers (CAAV), echo the need to avoid significant loss of land from food production and to avoid market distortions that could arise from unequal tax treatments.

If you would like further information on APR or advice on any other tax matter, please contact your Moore Thompson representative today.