IHTM24072 - Value and valuation of agricultural property: excess of value over agricultural value, interaction with business relief

It is possible that the conditions for both business relief and agricultural relief may be satisfied in respect of the same property. To prevent double relief, IHTA84/S114 (1) provides that any part of the value transferred which is reduced by agricultural relief (at whatever rate), or would be so reduced but for IHTA84/S121 (3), cannot be reduced by business relief. ( IHTM24155)

As business relief and agricultural relief do not have to be claimed by the taxpayer, the effect of IHTA84/S114 (1) is that it is not possible for the taxpayer to choose between them.

IHTA84/S114 (1) operates by preventing the same part of the value transferred being reduced by both business relief and agricultural relief, giving priority to agricultural relief. However, the part of the value transferred which would otherwise be reduced by business relief retains its status as relevant business property under IHTA84/S105 (1) or as part of the value of relevant business property.

The open market value of agricultural property may exceed its agricultural value ( IHTM24071), for example, because the land has planning permission, there is development or amenity value, or mineral value (such as gravel or sand). Agricultural relief will not be available in respect of the excess value. However, business relief may be available in the alternative.

If the deceased/transferor is involved in farming as a sole trader then business relief will be available at 100% on the agricultural property which also constitutes relevant business property, IHTA84/S105 (1)(a). This will also be the case if the deceased/transferor was a partner in a partnership, which owns the land as a partnership asset.

If the land was owned by the deceased and occupied by a partnership of which the deceased/transferor as a member, then business relief will be due at 50%, IHTA84/S105 (1)(d).

Where the deceased owned ( IHTM24121) land occupied ( IHTM24111) by a partnership of which he was a member by way of an agricultural tenancy and 100% relief is due because the transitional provisions ( IHTM24085) apply. Business relief (IHTM25130) at 50% will be due for the excess over the agricultural value provided and to the extent that the land/buildings were occupied for the purposes of the business. If, however, the deceased was not a member of the partnership farming the land, business relief will not apply.

Where the deceased's land was let to a company claimed to be controlled by them directly, or through the application of the related property ( IHTM09731) provisions, SAV can confirm the position. If there was no formal tenancy, then where the land was occupied by a company controlled by the deceased, business relief will be due at 50% on any excess value.

If the land was let out to a tenant farmer who occupied it for the purposes of their own farming business, then business relief will not apply.

In the case of a farmhouse or other residence situate on a farm, business relief will not usually be available on the difference between the agricultural value and the open market value. This is because the main use will be as a residence rather than for the purposes of the business.

You can find an example of how these two reliefs interact at IHTM25121