Agricultural Relief for Inheritance Tax
Work out whether assets in an estate qualify for Agricultural Relief and the rate at which it is due.
Agricultural property
You can pass on some agricultural property free of Inheritance Tax, either during your lifetime or as part of your will.
Agricultural property that qualifies for Agricultural Relief is land or pasture that is used to grow crops or to rear animals. It also includes:
- growing crops
- stud farms for breeding and rearing horses and grazing
- trees that are planted and harvested at least every 10 years (short-rotation coppice)
- land not currently being farmed under the Habitat Scheme
- land not currently being farmed under a crop rotation scheme
- the value of milk quota associated with the land
- some agricultural shares and securities
- farm buildings, farm cottages and farmhouses
Some agricultural property does not qualify for Agricultural Relief, including:
- farm equipment and machinery
- derelict buildings
- harvested crops
- livestock
- property subject to a binding contract for sale
Location
To qualify for relief, a property must be part of a working farm in the UK. It can be owner occupied or let.
If claimed before 6 April 2024, the relief also applies to charges on deaths and other transfers in the:
- Channel Islands
- Isle of Man
- European Economic Area
Period of ownership or occupation
The property must have been owned and occupied for agricultural purposes immediately before its transfer for:
- 2 years if occupied by the owner, a company controlled by them, or their spouse or civil partner
- 7 years if occupied by someone else
Property received by transfer
If the person making the transfer originally inherited the property from someone other than their spouse or civil partner, their period of ownership is calculated from the date of that first death.
If the property was originally acquired through a transfer, the following statements must all be true:
- the property qualified for Agricultural Relief at the date of the first transfer
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the property was occupied for agricultural purposes by either:
- the person making the later transfer
- the personal representatives of the person the property originally came from
- the property qualifies for relief, apart from the occupation and ownership tests
- one of the transfers occurred on death
Farmhouses and cottages
Buildings must be of a nature and size appropriate to the farming activity that is taking place. The property is valued as if it could only be used for agricultural purposes. Any value over and above this ‘agricultural value’, such as the market price of a country residence, does not qualify for Agricultural Relief.
A cottage or farmhouse must be occupied by someone employed in farming or:
- a retired farm employee
- the spouse or civil partner of a deceased farm employee
They must occupy the property as either a:
- tenant under a lease granted as part of their former employment contract
- protected tenant with statutory rights
Rates of Agricultural Relief
Agricultural Relief is due at 100% if:
- the person who owned the land farmed it themselves
- the land was used by someone else on a short-term grazing licence
- it was let on a tenancy that began on or after 1 September 1995
A property owned before 10 March 1981 can qualify for 100% relief if:
- it would have qualified under Schedule 8 Finance Act 1975 if it had been transferred before that date
- the person who owned it had no possible right to vacant possession between that date and the date of the current transfer
In any other case, relief is due at 50%.
Mortgaged property
Before calculating the Agricultural Relief, you must deduct any:
- outstanding mortgages on the property
- other secured liabilities on the property
Agricultural shares and securities
Some company shares and securities are eligible for Agricultural Relief if their value:
- gave the deceased control of the company at the time of death
- comes from agricultural property that forms part of the company’s assets
Find out more about the rules that apply to sales of related property within 3 years after death.
Gifts of agricultural property
If a gift (or portion of a gift) qualified for Agricultural Relief at the time it was made, it will still qualify if it:
- has been held by the person who received it until their own death or that of the person who gave the gift
- is agricultural property that has been occupied for agricultural purposes since the gift was made
If the person receiving the gift dies before the person who gave the gift, conditions for relief have to be met:
- on the date that the gift is given
- at the time of their death
If the person receiving a gift sells it, before the death of the person giving the gift, to a company in exchange for shares in that company then those shares are treated as the original property.
Any additional shares received as a result of a re-organisation or take-over-bid are treated as part of the original gift.
Replacement agricultural property
Conditions must be met if:
- property which qualified for relief is replaced by other property that also qualifies for relief (apart from the minimum period of ownership requirement)
- the original property was gifted
These conditions are:
- all of the sale proceeds are used to buy the replacement property
- the sale and purchase are an ‘arms length transaction’ — the buyers and sellers act independently and have no relationship to each other
- the sale and purchase take place within 3 years of each other
When combined, the original and replacement properties must meet the conditions shown under ‘Gifts of agricultural property’.
If the agricultural property was in a person’s estate when they died and it had replaced other agricultural property, it may still qualify for Agricultural Relief if the original and replacement property:
- was occupied by the owner, for the purposes of agriculture, for a total period of at least 2 years during the 5 years before the death
- was owned and occupied (either by the owner or someone else) for the purposes of agriculture for at least 7 years during the 10 years before the death
Relief is limited to what would have been available before the replacement.
If the property was sold at less than the market value, relief is limited by the proportion that was given as a gift.
Example
John sells a field on his farm to his son David for £500. The field is worth £2,000. This means that John is giving David a gift of 75% of the value of the field (£1,500).
David sells the field for £2,000 a year later. He uses all the money from the sale to buy another field.
John dies 3 years after the sale.
When calculating Inheritance Tax, the value of the gift made by John is the original market value of the field (£2,000), less the £500 paid by David (the value that was transferred). The resulting sum of £1,500 is eligible for Agricultural Relief.
Business relief
You cannot claim Business Relief on the value of an asset that you have already claimed Agricultural Relief on.
You may be able to claim Business Relief on the value of an asset not fully covered by Agricultural Relief if:
- you are a farming business
- the conditions of Business Relief are met
Last updated 6 April 2024 + show all updates
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From 6 April 2024, Agricultural Relief will not apply to agricultural property in the Channel Islands, Isle of Man or European Economic Area.
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Updated to remove 'intensively' from the end of the following sentence: 'Agricultural property that qualifies for Agricultural Relief is land or pasture that is used to grow crops or to rear animals.'
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The example of replacement agricultural property has been updated.
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Guidance on Business Relief has been updated.
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First published.