Understanding Agricultural Property Relief – A vital tool for farmers

By Heather Bright, Partner and ARA specialist

The recent confirmation from Labour that it has no plans to change Inheritance Tax (IHT), including Agricultural Property Relief (APR), if it wins the next election, comes as a relief to the farming community.

This stance, as stated by Shadow Defra Secretary Steve Reed, has been widely welcomed by the industry, given the crucial role of APR in supporting family farms and the broader agricultural sector.

The importance of Agricultural Property Relief

APR is currently available on farmland, whether it is used by the owner or a tenant. This relief is vital for family farms, enabling them to continue producing high-quality food and caring for the countryside.

NFU President Minette Batters has expressed satisfaction with Labour’s recognition of the importance of maintaining this policy.

The role of APR in land tenancy

Over a third of land in the UK is rented by farmers, and around two-thirds of farmers rent at least some of their land. The availability of APR plays a significant role in encouraging landowners to let their land.

If APR were removed, landowners might be deterred from renting out their land, as they could secure business property relief by farming the land themselves or using it for another trading activity.

This shift could lead to a reduction in the amount of rental land available for farmers, impacting tenant farmers, new entrants lacking capital to buy land, and farms seeking flexibility to expand.

Financial implications of APR

The NFU has highlighted that the removal of APR would not likely raise substantial tax revenue but could have a broader impact on food security.

If landowners withdraw their land from tenancies and food production, it could significantly affect the industry. The return on capital for farming can be low, and a 40 per cent IHT charge without APR would consume all profits, hindering any ability to invest in the business.

Ongoing discussions and future prospects

The NFU has been actively lobbying on whether APR should be extended to cover all Environmental Land Management schemes (ELMs) following a Government consultation on the scope of APR from IHT.

The NFU is also advocating for the Government to clarify the tax treatment of agricultural land entered into environmental schemes ahead of the Spring Budget.

For farmers, understanding and effectively utilising Agricultural Property Relief is crucial for long-term financial planning and sustainability.

Our expert team of accountants can provide support and guidance on the implications and benefits of APR for your farm and assistance in estate planning and IHT strategies. For more information, please contact us today.