Agricultural Relief first came into existence in the Finance Act 1894 which introduced Estate Duty, subsequently replaced by Capital Transfer Tax and now by Inheritance Tax. There has been little case law on exactly what constitutes agricultural property to which Agricultural Relief may apply and, with the maximum level now at 100%, the identification of such property can be more contentious than hitherto. The purpose of this Practice Note is to explain how property may qualify as "agricultural property" under the Inheritance Tax legislation and to provide guidance on the assessment of open market value and agricultural value.
It is set out in three parts:-
- Part 1. Identification of agricultural property.
- Part 2. The assessment of agricultural value.
- Part 3. Rates of relief.
The principal Act to which all references are made, unless expressly stated otherwise, is the Inheritance Tax Act 1984.
The consideration of whether or not Agricultural Relief should be granted can be complex.
Decisions on the granting of this relief are the sole prerogative of the CTO and caseworkers must be careful to avoid giving the impression that Agricultural Relief will be granted even if the conditions appear to be satisfied.
The process of considering the granting of Agricultural Relief may be considered as a number of steps
- Basis for the relief - Section 116
Section 116 provides that Agricultural Relief may be granted on the agricultural value of qualifying agricultural property on chargeable transfers. In order to obtain this relief the following conditions must be satisfied.
- The extent of the estate - Section 5
Agricultural Relief is only available on property within the estate of the transferor/deceased. It is necessary first to establish the extent of the estate and this is the responsibility of the CTO.
- Conditions for relief
In order to obtain the relief the relevant property must:-
- qualify as agricultural property under Section 115(2)
The property must accord with the definition of agricultural property as laid down in Section 115(2). Advising the CTO on this aspect is part of the role of the VOA.
- satisfy the occupational and ownership provisions of Section 117
Property within the estate must have been occupied for the purposes of agriculture for a specified minimum period ending with the date of transfer/death. The period varies as to whether the property was in hand or let. It is the responsibility of the CTO to determine whether this section is satisfied.
- Agricultural Value of Agricultural Property - Section 115(3)
Having determined what parts of the estate are agricultural property, the caseworker must consider its open market value and its agricultural value as Agricultural Relief will not be available on the difference between these values.