Understanding Agricultural Property for APR: What Qualifies and What Doesn’t

Changes to Agricultural Property Relief (APR)

Recent budget changes have placed farmers in the spotlight, particularly following the October 2024 announcement that, from April 2026, both Agricultural Property Relief (APR) and Business Property Relief (BPR) will be reduced. The 100% relief rate will only apply to the first £1 million combined agricultural and business property. Any value exceeding this threshold will qualify for relief at 50%, effectively resulting in a 20% inheritance tax (IHT) charge.

Despite these changes, farmers will still benefit from the standard nil-rate band and the residence nil-rate band, just like other taxpayers. This means a couple can pass on a farm valued up to £3 million free of IHT, provided it includes a farmhouse worth at least £350,000 and neither partner’s estate exceeds £2 million.

What Is Agricultural Property Relief (APR)?

APR is an IHT relief designed to allow agricultural property to be transferred free of IHT, provided specific conditions are met. It applies whether the property is transferred during the owner’s lifetime or upon their death.

To qualify for APR, the property must be part of a working farm in the UK and either owner-occupied or let out. Additionally, it must have been used for agricultural purposes immediately before the transfer:

• For at least two years if occupied by the owner, their spouse, civil partner, or a company controlled by them.
• For at least seven years if occupied by another party.

From 6 April 2026, the 100% relief rate (subject to the new cap) applies where:

• The owners farmed the land themselves.
• The land was used by another party under a short-term grazing license.
• The land was let under a tenancy agreement that started on or after 1 September 1995.

What Qualifies as Agricultural Property?

For APR purposes, agricultural property includes land or pasture used for growing crops or rearing animals. Additionally, the following qualify:

• Growing crops
• Stud farms used for breeding and rearing horses
• Short rotation coppice (trees planted and harvested at least every ten years)
• Land left fallow under the Habitat Scheme
• Land set aside under a crop rotation scheme
• The value of milk quotas linked to the land
• Certain agricultural shares and securities
• Farm buildings, cottages, and farmhouses

To qualify, farm buildings must be appropriate in size and nature for the farming activity. Farmhouses and cottages must be occupied by:

• Someone employed in farming
• A retired farm worker
• The spouse or civil partner of a deceased farm worker

The valuation of buildings is based on their agricultural use. If a farmhouse has additional value, such as being a country residence, that excess value does not qualify for APR.

What Is Excluded from APR?

Not all farm-related assets qualify for APR. The following are excluded:

• Farm equipment
• Derelict buildings
• Harvested crops
• Livestock
• Property under a binding contract for sale

However, in cases where these assets are part of a broader business, Business Property Relief (BPR) may still apply, provided the relevant conditions are met.

Final Thoughts

With the upcoming changes to APR, understanding which assets qualify is more important than ever. Farmers should carefully assess their estate planning strategies to maximize available reliefs and reduce potential IHT liabilities.

Legal Reference: IHTA 1984, s. 115

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