Advice for farmers as HMRC steps up APR claim investigations
As featured in Farmers Weekly Publication, October 2022.
7th November 2022
Laura Wylie See profile
HMRC has stepped up investigations into claims for Agricultural Property Relief (APR), with a 28% jump in the number being scrutinised.
In the 12 months to the year ending 31 March 2022, HMRC opened investigations into 278 claims, according to private wealth law firm Boodle Hatfield – up from 217.
One reason could be the scaling back of investigations in the past two years during the Covid-19 pandemic. We have noted in general a lot more activity around APR and other tax reliefs as HMRC operations get back to normal levels after the pandemic. Agricultural land can be passed on by owners to their children or others without incurring Inheritance Tax (IHT) by claiming APR.
To qualify, the land must be used for agricultural purposes, such as growing crops or rearing livestock, for two years (if occupied by the owner) or seven years, before it is passed on.
If the claimant lives in the farmhouse, but is not involved in farming the land, the farmhouse will not qualify. While the farmland may still be eligible, the farmhouse will be liable for IHT. If there is a disconnect between the occupation of the farmhouse and the farming of the land, the house will not qualify for APR.
To qualify, when a share-farming or other form of joint venture is undertaken, the farmer should retain control of decision-making, for instance on the cropping schedule or livestock breeding.
These decisions should be evidenced, for example, if you are having a meeting with the contract farmer, make sure that there are minutes of this meeting so that you can demonstrate to HMRC that you play an active part in the farming operations.
If the farmhouse is large but the acreage is small, APR is unlikely to be granted. When there is a manor house and 50 acres, HMRC will take a dim view of an APR claim.
A farm cottage must be occupied by a farmworker who works on the farm or a retired farm worker or their dependants to be eligible for APR.
When it is used as holiday accommodation, APR does not apply and, in most instances, neither does Business Property Relief (BPR), because HMRC views this as an investment activity.
To qualify for BPR, you have to prove that you are actively involved in the running of the furnished holiday letting business and not remote and detached from your guests, as might be the case in an Airbnb situation where there is simply a key safe and guests let themselves in. A very high level of additional activity is needed – for instance, the provision of evening meals, breakfast hampers, organising activities during a stay or providing an informal transport service for guests – to show you are providing an experience; a holiday service.
Land that is put into a government-run environmental scheme will be eligible for APR, but not if a third-party plants trees or rewilds the land outside of the available schemes.
Countryside Stewardship and habitat schemes, such as species-rich grassland, water fringe and coastal belt, are among those that preserve the APR status.
APR remains available where woodland is considered ancillary to the farm – for instance, for use as a shelter belt – and does not cover a large area when compared with the overall area of agricultural land. Rewilding is a relatively new term, but I am sure we will see more test cases for APR on these in the coming years.
In order for farm buildings to qualify for APR, they must be in use for agriculture and not left empty or derelict.
A building that is let for some other commercial use will also not qualify for APR.
If farm buildings are too remote from the farm there could be a question mark over whether these are being used for agricultural purposes.
Farmers should ensure that buildings are being used for storage of equipment or crops wherever possible and consider whether redundant buildings can be repurposed before considering constructing a new building.