The Autumn 2024 Budget has changed the rules surrounding Agricultural Property Relief and what value can be claimed tax free.
As farmers gather to lobby the government on inheritance tax changes, Associate Solicitor Rebecca Lee discusses how they will be affected by the Autumn Budget.
The Autumn 2024 Budget brought quite extensive changes especially in Inheritance Tax matters. The changes to Agricultural Property Relief will not take effect until April 2026 but that means you have time to review your business to make your Estate as tax efficient as possible.
What is Agricultural Property Relief?
Agricultural Property Relief is a tax-free allowance that can be claimed against the value of your farming land or grazing pastures when calculating your Inheritance Tax. Inheritance tax is usually charged at 40% on your Estate value subject to various tax-free allowances.
What were the old rules?
Agricultural Property Relief (APR) can be applied when you give away land or pasture during your lifetime or under your Will. It is a tax-free allowance that offsets the value of the land or pasture from the rest of your Estate. It can be applied to:
- Land that crops are grown on
- Stud farms
- Grazing land for animalsa
It does not include:
- Farm machinery such as tractors
- Livestock
- Harvested crop
In order to qualify, it must be a working farm and be owned or occupied for agricultural purposes. If personally owned via self, company, spouse or civil partner, it must be owned for at least 2 years. If occupied by someone else (e.g. you have a tenant farmer), you will need to have the asset for at least 7 years. There are a few other options where Agriculture Property Relief may apply and these will be explained to you if applicable. The tax relief was 100% on the value of the land if personally farmed or only let on a short-term grazing licence or the tenancy started after 1 September 1995. If the above does not apply, the relief was set at 50% of the value with 40% Inheritance Tax applicable on the remaining 50%.
What is the change from the Autumn 2024 Budget?
The Chancellor has set out changes to the APR which will come into effect on 6 April 2026. 100% Agricultural Property Relief on value of farmland or pastures will have a value cap of £1 million. If the value of the land exceeds £1 million, the excess will be charged at a reduced rate of Inheritance Tax of 20%.
What does this mean for you?
Agricultural Property Relief will affect the large farm and landowners but with rising land prices, this may cause headaches for many others. To make this a little easier to understand, please see an example below: Matthew owns a family farm that is worth £2.5 million and passes away in June 2026. He has no other reliefs available, so his inheritance tax calculation looks as follows:
- The first £1 million is exempt.
- The excess above the £1 million cap is £1.5 million
- There is a 20% tax rate applicable on the £1.5 million excess: £1,5000,000 x 20% = £300,000
Originally published 19 November 2024
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
