HMRC Inheritance Tax: Customer Guide

Tell me about the interaction of business and agricultural relief and exemptions

Interaction of business relief with agricultural relief

If the conditions for both agricultural and business relief are satisfied then agricultural relief is available instead of business relief. However, business relief may be available on a transfer of agricultural property which is not eligible for agricultural relief.

Interaction of business or agricultural relief with other exemptions

Any exemptions or reliefs relating to transfers of value are available after business or agricultural relief has been given.

For transfers of value made on or after 18 March 1986, the following guidelines will help you to determine the extent to which a partly exempt transfer is chargeable to tax. This will enable you to attribute the value transferred (as reduced by business or agricultural relief) to specific gifts and gifts of shares of residue.

  • Start with the value of the estate before the relief.
  • Adjust the value to show the value of the estate after the relief.
  • Specific gifts of relievable property are taken as their value after relief.
  • The value of gifts, other than specific gifts of relievable property (where the estate includes relievable property and is partly exempt), are reduced by multiplying them by the fraction

    the value of the estate after relief / the value of the estate before relief

    If the estate includes specific gifts of relievable property and other relievable property, you should omit the specific gifts of relievable property, at their reduced and unreduced values respectively, from both the numerator and denominator.
  • The provisions are applied to each title separately.

Example

Ashwin dies leaving a £600,000 estate of which £400,000 qualifies for business relief at 50% (so the value transferred after relief is £400,000). In his will, he bequeaths a pecuniary legacy of £150,000 to his civil partner and the residue to his brother.

As there is no specific gift of relievable property, we reduce the pecuniary legacy by the fraction

£ 400,000/£600,000 x £150,000 = £100,000

The taxable estate after exemption is £400,000 - £100,000 =£ 300,000.

More on interaction and 'grossing up' calculations.