What are “Agricultural Purposes” for Agricultural Property Relief (APR?)

Business Property Relief (BPR) and Agricultural Property Relief (APR) are reliefs that can significantly reduce or offset an Inheritance Tax liability. In previous blogs (see Related Articles below) we have discussed BPR and the issues involved in determining whether this relief is available. This blog will instead focus on APR and the definition of "agricultural purposes". What is APR? APR is available on certain transfers of property. The property can be transferred either as a gift during the individual’s lifetime or on their death. In order for the relief to apply, the following conditions must be met: 1) The property must be agricultural property. This is defined as agricultural land or pasture which is situated in the European Economic Area, Channel Islands or the Isle of Man. It must be used to grow crops or for the intensive rearing of animals for food consumption. Woodlands and buildings used for the intensive rearing of livestock or fish may also be considered as agricultural property if their occupation is necessary for the occupation of the land or pasture. Similarly, farmhouses, cottages or buildings may be considered as agricultural property, depending on their size and nature in relation to the activities carried out. 2)The property must have been either:

• Occupied by the individual for "agricultural purposes" throughout the two years preceding the transfer; or
• Owned by the individual throughout the seven years immediately preceding the transfer, and occupied throughout the period for "agricultural purposes" (the identity of the occupier is not important).

What is the amount of relief? APR is given as a percentage of the "agricultural value" of the land (i.e. the value of the land assuming it can only be used for farming purposes). APR is available at 50% if the land is let by a landowner to a farmer, the lease was signed before 1 September 2995, and the lease has at least 2 years left to run at the date that the land is transferred. In any other case, APR is normally available at 100%. "Agricultural Purposes" - Differing Opinions and HMRC Viewpoint The term "agricultural purposes" is not explicitly defined in the legislation, therefore this can be a contentious area. HMRC states that ‘agricultural purposes’ include:

• Cultivation to produce food for human and animal consumption.
• Use to support livestock kept to produce food for human consumption.
• The keeping of such other animals as may be found on an ordinary farm.
• Land set aside for permanent or rotational fallow.
• Cultivation of short rotation coppice.

It may also be possible for activities that are not agricultural under general law to be considered as such for inheritance tax purposes, such as the breeding and grazing of racehorses on a stud farm. HMRC has confirmed that land that is normally used for agricultural purposes may also occasionally be used for other purposes, as long as this is not the primary reason for the occupation. For example, this could include a working farm where an annual horse race takes place. Interestingly, HMRC has recently expanded the above definition to specify that "food" includes grapes grown to produce wine and apples grown to produce cider. Therefore, it is now clear that commercially running vineyards and orchards would undoubtedly be considered occupying land for "agricultural purposes". Examples of Debate Cases that have caused debate in relation to this topic include:

• Reeds for thatching and whether cultivation was necessary (Assessor for Tayside Region v Reedways Ltd, 1982). The owners of the land simply cut the reeds down and did not participate in any tilling, sowing or cultivating. The fact that tilling of the soil did not occur meant that these activities were not considered to be agricultural and therefore not eligible for APR.
• Nurseries growing seeds and plants, including seeds to produce flowers, as well as food crops such as tomatoes, lettuces and potatoes. These activities have been acknowledged as ‘agricultural purposes’ by HMRC and eligible for APR.
• Growing grass for turf (Assessor for Lothian Region v Rolawn Ltd, 1990). As the owners of the land actually grew the turf that was to be sold, HMRC acknowledged these activities as ‘agricultural purposes’ and eligible for APR.
• The keeping of birds, such as pheasants, for sport (Agriculture Act 1976/S1 in Earl of Normanton v Giles, 1980). In this case, it was decided that the gamekeeper was not employed in agriculture because the main purpose of his role was to provide birds that would be shot by sportsmen, even though they would later be sold as food. Therefore, the keeping of birds for sport cannot be acknowledged as an "agricultural purpose" and is not eligible for APR.

We hope that this blog will allow you to understand and utilise APR in relation to inheritance tax. If you have any questions, please contact a member of our team. Related Articles Business Property Relief on Furnished Holiday Lettings  (22 June 2015) Availability of Business Property Relief on Furnished Holiday Lettings (7 August 2017) Inheritance Tax & Loans Invested in BPR/APR Assets – Change to Proposed Rule (27 June 2013) Business Property Relief – Zetland Trust Denied BPR (22 August 2013) Taxpayer Clears Hurdles for BPR on Livery Business (12 September 2017) Update: HMRC Unsuccessful in Upper Tribunal Appeal against the award of BPR to a Livery Business (19 December 2018)