Different land uses have implications for Inheritance Tax Reliefs. Here Keith Phillips of Duncan & Toplis examines the implications of letting land to a gliding club.
Q. I own land that is rented by a gliding club on a 10-year lease. We graze the land with livestock, but they pay rent and use it as an airfield. Am I liable for inheritance tax or does it qualify for any reliefs?
A. The answer very much depends on a number of factors and the degree to which certain activities are undertaken.
Land held for agricultural purposes does, subject to certain conditions, for Inheritance Tax (IHT) purposes qualifies for Agricultural Property Relief (APR) on its agricultural value. The main conditions are that the land should be used in the farming trade and be so used for at least two years prior to a death.
In addition, if the land is used in the trade of a deceased person it may well qualify for Business Property Relief (BPR). This relief extends to cover market value which may be significantly higher than agricultural value.
In most cases the rate of relief for both APR and BPR is 100%, but this is reduced to 50% in certain circumstances. Most commonly this is where the land is owned personally, but where the farming activity is operated through a partnership or a limited company.
This 50% relief also extends to land let to others, although relief at 100% is possible on land rented out under a Farm Business Tenancy so long as the land has been farmed by someone. To obtain this relief the ownership qualifying period rises to seven years.
The renting of non-agricultural land does not qualify under either of these reliefs, so land rented out for other purposes such as a caravan park or perhaps a solar farm do not qualify. Applying the above general rules, the answer for you is “it depends”.
If the main activity and income generation from the land is the grazing of livestock and the glider club only makes use of it on a limited number of occasions during any year, then it potentially retains its agricultural status, so if all other conditions are met it would not be subject to IHT.
If the reality is that the glider club is the main user of the site, and its occupancy under the conditions of tenancy is that it has unfettered access to use of the landing strip and any club house on the site, and the grazing of livestock is incidental to the activities of the gliding club, then a claim for APR or BPR is unlikely to succeed.
It may still be that the value of the asset is covered by your own lifetime exemption, currently £325,000.
This will depend on what other chargeable assets form your estate at the time of your death and if you leave the assets to a spouse, where again no tax is charged. On the second death you can also inherit the lifetime exemption of a spouse, so a value of £650,000 of chargeable assets is covered under this exemption. This may be sufficient, depending on the land value.