Business Clinic: Can my farm be sold tax-free after inheritance?

Whether it’s a legal, tax, insurance, management or land issue, Farmers Weekly’s experts can help. Here, Elizabeth Jones, partner with accountant Baldwins, addresses a question on the tax liability following inheritance of a farm.

Q. With reference to inheritance tax (IHT) and agricultural property relief (APR), can I leave my farm to any individual on my death and be eligible for 100% APR, assuming the property meets all the conditions for relief? Would the person inheriting then be able to sell the farm with no tax liability, assuming the value has not changed following my death?

A. Provided a property meets the relevant conditions for APR, it can be left to any individual on your death and qualify for 100% APR from IHT. 

These conditions are that it has been owned by you and occupied for the purposes of agriculture for a period of at least two years if occupied by you, or seven years if occupied by someone else, with appropriate agreements in place.

See also: Business Clinic – how farm partner mental capacity affects BPR

That person will inherit the property at the full market value and, if they wish, can immediately sell it using the value at the date of death as their base cost for capital gains tax (CGT) purposes. As such, if the value has not increased, they would not be liable to any CGT.

Please note, however, that the APR will only cover the agricultural value of the property, not the market value if this is higher, as a result of hope or development value, for example. 

In order for any value in excess of agricultural value to be covered, the farm must qualify for business property relief (BPR).  This means the farm must be held by you and have been used within your business or a partnership you control for a period of at least two years prior to the date of death.

Generally you would only obtain APR on approximately 70% of the value of the farmhouse itself – though in some circumstances this may be higher.

APR will also not cover the value of any farm cottages unless they meet the “farmer” test and qualify “in the round” or are occupied by farmworkers.  

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