By Michael Ball, Partner
There are two main reliefs for inheritance tax that can apply to farmland. These are Agricultural Property Relief (APR) and Business Property Relief (BPR).
APR applies to the agricultural value of the land and applies where it is occupied for the purpose of agriculture. The length of ownership and occupation required depends on who occupies the land; if it is occupied by the owner or a company they have a controlling holding in then the period is 2 years, if occupied by another, e.g. a tenant, then the period is 7 years.
BPR applies where the asset is used in a business that is not wholly or mainly one of holding investments. Therefore a business that is more than 50% trading will qualify for the relief and this can apply to the full value of the land, including development value. The rate of BPR applicable depends on the circumstances and there are some restrictions therefore advice should be sought out to confirm the qualifying status of a business and its assets.
Land that has been taken out of agricultural production over an extended period for an environmental scheme or project is unlikely to qualify for agricultural property relief from inheritance tax as the rules currently stand.
Specific provisions were previously added to the APR rules to ensure that relief was not lost for previous schemes such as former set-aside land under The Habitat (Former Set-Aside Land) Regulations 1994.
The new Environmental Land Management Schemes in England that will pay for environmental and climate goods and services, the Sustainable Farming Incentive (SFI), Countryside Stewardship (CS) and Landscape Recovery, do not currently have these provisions.
So, where land has been taken out of agricultural production over an extended period for an environmental scheme or project, it is unlikely to qualify for APR based on the current rules.
However, owner-occupiers may continue to benefit from BPR if the land is still used in the business and the overall business is not one of wholly or mainly making or holding investments.
A particular area of concern is where a non-farming landowner leases the farm to a tenant. BPR would not be due and APR would be restricted to the land still being used for the purposes of agriculture.
A consultation which discussed this matter (Taxation of environmental land management and ecosystem service markets) was issued in March and the consultation period ended on 9th June.
It is therefore hoped that a reasonable solution is reached, such as the inclusion of specific provisions in the legislation to ensure that land under an Environmental Land Management Scheme will benefit from APR.