Agricultural Property Relief (APR) has long been the most valuable tool for UK farmers to transfer family farms to the next generation without incurring substantial Inheritance Tax (IHT) charges. According to the treasury, APR aims to ‘help protect family businesses and farms’, but this has been fraught with strong political debate.
Aristocratic families own a quarter of UK farmland, often tied up in long-standing estates, with a further 10% owned by charitable institutions. This has resulted in low levels of purchasable farmland in the market. Combined with surging building costs and an increase in private land buyers, UK farms have been driven to their highest values, according to the Rural Report. The average UK farm is now valued between £1.5m and £2.2 million, with values continuing to keep pace with high levels of inflation.
Farming unions have argued that Agricultural Property Relief ensures the next generation of farmers can afford to continue operating farms without the ongoing tax burden on non-liquid assets. On the other hand, critics have questioned why agricultural businesses receive preferential treatment for IHT compared to other family businesses. For information about how Inheritance Tax impacts other businesses and the key allowances, read our guide to Understanding Inheritance Tax.
Tensions surrounding APR came to a head in the Autumn Budget 2024, with the chancellor’s announcement that the scheme will face significant reforms. For the first time, Business Property Relief (BPR) and Agricultural Property Relief will be subject to a £1m combined cap of 100% relief, with values exceeding this amount only benefiting from 50% relief from April 2026.
This article will explore Agricultural Property Relief as a method of Inheritance Tax planning for farmers and rural landowners, the exclusions and allowances, and the upcoming changes to regulations from April 2026.
Table of Contents
What is Agricultural Property Relief?
Agricultural Property Relief (APR) is a relief from Inheritance Tax (IHT) on the transfer of agricultural property. Granted by the Inheritance Tax Act 1984, APR is available on gifts of land occupied for the purposes of agriculture, together with appropriate buildings and farmhouses used in conjunction with the land. The relief recognises the challenges of passing on working farms, where assets are often capital-intensive but generate modest incomes.
Who Qualifies for APR?
APR is available to individuals who own agricultural land or property in the UK, provided that it has been used for farming purposes. To qualify, the owner must have either occupied the land for agriculture for at least two years before the transfer or seven years while it was farmed by someone else, for instance, a tenant farmer. Under the Agriculture Tenancies Act 1995, landlords who lease out farmland may only qualify for 50% relief if the tenancy began before September 1995.
Assets that Qualify for APR
The following assets typically qualify for Agricultural Property Relief:
- Agricultural Land: Arable fields, pastures, and meadows actively used for farming.
- Farm Buildings: Buildings directly related to agricultural operations, such as grain stores, barns, milking parlours and shelter for livestock.
- Farmhouses: HMRC scrutinises farmhouses closely. The building must be ‘character appropriate’ to the farmland and be integral to the farming business.
- Livestock: Including cattle, sheep, pigs and poultry used in the farming business
- Growing Crops and Trees: This only applies to crops and trees cultivated for agricultural use and excludes commercial timber unless used in farming operations.
- Additional Agricultural Tenancies: Farmland let to tenant farmers. (100% relief for tenancies post-1995, with 50% relief for older agreements).
The types of assets that can qualify for APR will vary depending on the farm. For comprehensive guidance about qualifying assets for APR, you can explore HMRC’s Agricultural Relief for Inheritance Tax.
Assets that don’t qualify for APR
The following typically do not qualify for APR:
- Development Land: Land with planning permission or set aside for non-agricultural development.
- Excessive Farmhouses: Properties deemed too large or luxurious relative to the farming operation.
- Farm Equipment & Machinery: Tractors, harvesters, and other farming machinery do not qualify for APR but may be eligible for Business Property Relief.
- Non-Agricultural Buildings: This includes holiday lets, private stables, and offices not used for commercial farming.
- Recreational Land: Any land used for personal enjoyment. Including personal gardens, fishing lakes, and shooting grounds (not for commercial use).
- Standalone Woodland or Forests: Unless actively managed as part of the farming business. This may qualify for separate relief under Business Property Relief.
Agricultural Property Relief Exclusions
While Agricultural Property Relief offers valuable Inheritance Tax savings, HMRC rigorously scrutinises APR claims, particularly for high-value estates. Some common key examples where APR does not apply include:
Non-Agricultural Land Use
- Recreational Land: Including golf courses, fishing lakes and personal shoots not operated as part of the farming business.
- Land with planning permission: Land set aside for housing or commercial development.
Farmhouses that fail HMRC Testing
- Lifestyle farmhouses: Properties are deemed too large or luxurious relative to the farm’s scale. For instance, a £2m manor house on a smallholding.
- Non-working Farmhouses: If the owner is not actively farming or involved with the farm, HMRC is likely to deny relief.
Non-Essential Buildings and Assets
- Holiday lets or converted barns: Any buildings that are used for tourism or events rather than directly involved in agriculture.
Let Land Under Certain Tenancies
- Part-time Farming Arrangements: Where land is not consistently used for agriculture.
- Short-term contracts: Where land is let under a short-term agreement (less than 12 months).
Development Potential
APR only covers the agricultural value of land. If the land or parts of the total land have development potential, then only the farmed portion is included for APR. For instance, if a farmer owns 100 acres, with 10 acres outlined for planning permission, only 90 acres will qualify for APR.
Agricultural Property Relief, Business Property Relief and Inheritance Tax
Business Property Relief (BPR) is a specialised tax relief designed to reduce, or in some cases eliminate, inheritance tax liabilities by reducing the value of a business’s assets for IHT calculations. The relief can either reduce the value of business assets by 100% or 50%, depending on the type of asset.
Agricultural Property Relief (APR) and Business Property Relief (BPR) are two key UK Inheritance Tax reliefs that can significantly reduce or eliminate tax liabilities when passing on assets. While they operate separately, they often overlap for farming businesses. APR and BRP cannot be directly claimed for the same asset, but with the correct structuring, the reliefs can be fully utilised to reduce a farming estate IHT liability close to zero.
| Key Differences | APR | BPR |
|---|---|---|
| Applies to | Agricultural land, farmhouses and farm buildings | Trading businesses and business assets |
| 100% Relief Rate | Farmland is owned and actively farmed by the owner Land let after September 1995 Right to vacate within 12 months | Shares in unlisted companies |
| 50% Relief Rate | Land let before September 1995 You own the land but don’t farm it yourself and have no right to vacate | Business property (Buildings, land, machinery) Business Trusts (Business property held in trusts) Partnership Interests |
| Ownership Period | 2-7 years, depending upon use | 2 years minimum |
| Development Land | Excluded | May qualify if part of the trading business |
What Are the Current APR Rates?
The current levels of Agricultural Relief offer two potential rates of Inheritance Tax relief, depending on the circumstances of ownership. These rates will remain until April 2026, as set out in the Autumn Budget 2024. They are as follows:
100% APR applies:
- You own the land outright and it is farmed by yourself
- The land was let under a Farm Business Tenancy (FBT) that started after 1st September 1995
- You have the right to vacate possession (or could obtain so within 12 months)
50% APR Relief applies:
- You own the land but don’t farm it yourself, and don’t have immediate right to vacate possession
- The land was let under a tenancy agreement that started before 1st September 1995
In some cases, farms will have a mixture of assets that qualify and do not qualify for APR. For instance, part of the land might be used as a working farm, with areas set aside for development. Only the agricultural portion of the farm will qualify for APR. This can be complex, and it is recommended to seek professional guidance. For further guidance, speak to one of our Inheritance Tax Advice Specialists.
What Are the Upcoming Changes to Agricultural Property Relief?
The Autumn Budget 2024 announced sweeping reforms to Agricultural Property Relief, making it one of the most significant IHT changes in decades. These upcoming changes will take effect from April 2026 and include:
Tightened Farmhouse Eligibility
HMRC will introduce stricter tests for farmhouses to reduce “lifestyle” properties from APR allowances. Owners will be required to prove that they are actively involved in daily farming to be considered for APR.
£1 Million Combined Relief Allowance
- The first £1 million of qualifying APR and BPR assets will still receive 100% relief.
- Above £1 million, the relief will drop to 50% (previously 100%).
For instance, a UK farm valued at £2 million with no other exemptions will now receive:
- £1m at 100% relief: No tax due
- £1m at 50% relief: £200k IHT after nil-rate band
Extension of APR to Environmental Land (April 2025)
From April 2025, APR will now be applied to land managed under environmental agreements and schemes with:
- UK or devolved governments
- Public bodies or local councils
- Approved environmental bodies
Who will be impacted?
The APR reforms will have a varying degree of impact, depending upon the significance of the farming operations.
- Small farms: If valued under £1m, will be unaffected by the cap
- Large Estates: Could face significant IHT liabilities above £1m without restructuring
- Hobby Farmers: Risk losing relief if farming activity is insufficient
Case Studies and Examples
Example 1: Farm Owned by One Person
A farm owned by one person will be able to pass on land and property to the value of £1.5 million to their children or grandchildren tax-free. The calculations are as follows:
- APR/BPR Allowance: £1 million
- Nil-rate band: £325,000
- Residence nil-rate band: £175,000
Total IHT free allowance: £1.5 million
Changes to APR and BRP reforms should not affect the total IHT allowance for the individual. However, this assumes that the farming assets qualify for APR and BRP. If the estate is passed on to non-direct descendants, only £1.325 million will be tax-free, as the £175,000 residence nil-rate band will not apply.
Example 2: Jointly Owned Farm Transfer
If a farm is jointly owned by two people, they will be able to pass on land and property valued up to £3 million to children or grandchildren tax-free. The calculations would be as follows:
- APR/BPR Allowance: (£1 million each x 2) = £2 million
- Nil-rate band: (£325,000 each x 2) = £650,000
- Residence nil-rate band: (£175,000 each x 2) = £350,000
Total IHT free allowance: £3 million
IHT: £0
Now, let’s assume that the land and property are valued at £4 million (assuming the increase in value is from the farming business). The calculation would be as follows:
- APR/BPR Allowance: (£1 million each at 100% relief x 2) = £2 million
- Nil-rate band: (£325,000 each x 2) = £650,000
- Residence nil-rate band: (£175,000 each x 2) = £350,000
Total 100% IHT free allowance: £3 million
Taxable Estate:
£4,000,000 (Total) – £3,000,000 (100% Relief) = £1,000,000
£1,000,000 x 50% APR/BRP Allowance = £500,000 taxable estate at 40%
IHT: 40% of £500,000 = £200,000
If the children or grandchildren continue to operate the farm, IHT payments can be made yearly over a 10-year period, interest-free at £20,000 per year.
Note: It is important to ensure that any assets passed onto children or grandchildren do not trigger a GWROB. For more information, read our Gifts with Reservation of Benefit (GWROB) article.
What Future Planning Options Are Available?
With the upcoming changes to APR, farmers and landowners should consider proactive strategies to minimise their Inheritance Tax liabilities. Some future planning options to consider including:
Gifting Assets to the Next Generation
By transferring ownership of farmland and/or business assets during your lifetime, the total taxable estate for IHT upon death is reduced. The amount of IHT liable is based upon the 7-year rule, providing tapered tax relief based on the time period passed.
There are three important considerations for gifting:
- You must no longer benefit from the gifted assets to not trigger Gift with Reservation of Benefit (GWROB).
- If you pass away within 3 years, full IHT applies
- You will no longer be able to benefit from the assets or business. Careful consideration is required to ensure that you can continue to fund your personal expenditure.
Placing Assets in Trusts
A trust is a legal arrangement that allows a person (the settlor) to transfer assets to trustees, who manage them for the benefit of specified individuals (the beneficiaries). By transferring assets into a trust, you provide a protective framework, shielding the assets from immediate tax. Depending upon the type of trust chosen, IHT might be payable upfront but will provide greater flexibility and predictability for the next generation.
Types of trust include:
- Discretionary Trusts
- Bare Trusts
- Interest in Possession Trusts
- 18-25 Trusts
Some trusts still qualify for APR and BRP reliefs, but the rules are complex and require professional guidance. For more information about using a trust, read, Can a Trust Help Reduce Inheritance Tax?
Restructuring Farming Businesses
For many farmers whose estates exceed the new £1m APR/BPR cap, it may not be financially viable to transfer ownership to the next generation to reduce IHT liabilities. In this instance, farmers may wish to continue to benefit from some of the business operations to maintain personal finances.
By restructuring the estate into smaller farming businesses, part of the farmland could be transferred to children or grandchildren without giving up the total farming operations. As a result, farmers can continue to benefit financially from part of the farm to fund personal expenditure.
It is important to note that neither business can support the other without a fair market value transfer. For instance, a tractor used on one part of the estate could not be used on the land in the alternate business without a payment being made for use. This ensures that GWROB is not triggered, diminishing any IHT savings.
While complex, for estates with multiple income streams, such as arable land vs livestock, this can be a proactive step to transfer wealth and minimise IHT liabilities.
For more guidance about taking proactive steps to minimise IHT, read our How to Avoid Inheritance Tax article.
Conclusion
The National Farmers Union predict that 75% of commercial family farms will exceed the £1m threshold set out by the government, compared with 27% suggested by government data. The new £1 million cap on combined APR and BPR reliefs will fundamentally change the planning landscape for many farming families, particularly those with medium-sized estates. While these reforms present challenges, they also create opportunities for those who take proactive steps to review and restructure their affairs.
At DS Burge & Co, our agricultural tax specialists are helping clients across the UK prepare for these changes through comprehensive estate reviews and tailored planning. We understand that every farm and rural business has unique characteristics that require individual attention. Speak to one of our Inheritance Tax specialists for further guidance.