The owners of agricultural property can now claim tax relief if transferring property in the United Kingdom (UK) or in Europe. This is the first time that property in Europe has qualified for this valuable tax treatment which could potentially save tens of thousands of pounds when it is inherited by the next generation.
Agricultural Property Relief (APR) is the tax relief that can be applied when a property is transferred. APR applies to lands and buildings are used for agricultural purposes. This includes the farm house, as long as it is occupied as the hub of the farming enterprise as well as land used for the rearing of livestock, growing of crops or stud farms engaged in the breeding and rearing of horses.
APR was extended to European properties in the 2009 Budget so now UK taxpayers can claim back up to 100% of the agricultural value of property in the UK and in Europe. However, there are some strict rules which must be met:
• The property has to be owned and farmed for two years; or
• it must be let or otherwise occupied by another person for seven years to be eligible for this relief.
In the Finance Bill there are provisions to enable executors to claim repayments of Inheritance Tax (IHT) paid after 23 April 2003 where the tax was paid on the value of agricultural land in Europe which now qualifies for relief.
Penelope Lang, director of private client tax services at Smith & Williamson says: "APR can be a means to mitigate IHT. It is limited to 100% of the agricultural value of the property, which may be less than its full value, especially where the land has development value. This does not prevent the relief being a valuable tool in passing down wealth from one generation to the next"
Penelope continues: "Land prices in the UK have held up well, despite the global downturn as land is a scarce resource. The continued and increasing need for more food means that farming returns should hold up. As such people looking for an investment which will attract IHT relief may consider purchasing farms. For example people looking to rear horses find they can often rear the horses more efficiently in Europe. The introduction of APR for the land may encourage them to invest in the land itself."
Frequently there are differences of opinion over whether farmhouses can are agricultural property. However, if the house is occupied for the purposes of agriculture and is of an appropriate character, it can be included, although you may not get relief on the full value.
