Agriculture & Farming UK-wide Limited CompanyPartnership

Agricultural Property Relief (APR) and Business Property Relief (BPR) can significantly reduce or eliminate the inheritance tax due when a farm passes between generations. However, 100% relief is capped at a combined threshold per person, meaning larger estates may face a tax liability.

This guide helps you understand how APR and BPR work for farms, assess your exposure, and plan your next steps.

This is a complex area with significant financial implications. We strongly recommend seeking professional advice from a solicitor or tax adviser experienced in agricultural estates before making any decisions.

How APR and BPR relief works

Qualifying agricultural property and business assets can receive 100% relief from inheritance tax up to a combined threshold of £2.5 million per person.

Above this threshold, relief reduces to 50%. This means an effective inheritance tax rate of 20% on the excess value (half the standard 40% rate).

Agricultural Property Relief (APR) thresholds

Business Property Relief (BPR) thresholds

For farms, BPR covers business trading assets that do not qualify for APR. This typically includes machinery, livestock, harvested crops, and trading stock.

Key points about the combined threshold

The £2.5 million threshold applies to APR and BPR combined. You cannot claim £2.5 million for APR and another £2.5 million for BPR. The total across both reliefs is £2.5 million per person.

For married couples and civil partners, the unused threshold can transfer to the surviving spouse. This means a couple can pass on up to £5 million in qualifying agricultural and business assets with 100% relief.

These thresholds are in addition to the standard nil-rate bands (£325,000 per person, plus £175,000 residence nil-rate band if passing a home to direct descendants). A farming couple could therefore potentially pass on up to £6 million tax-free in total.

What property qualifies for APR

APR applies to the agricultural value of qualifying property. This is the value the property would have if it could only be used for agriculture. For land with development potential, the agricultural value may be significantly less than market value.

Qualifying agricultural property includes:

  • Agricultural land and pasture
  • Woodland and land used for timber if part of a farming operation
  • Farm buildings used for farming purposes (barns, grain stores, livestock housing)
  • Farmhouses - but only if occupied for the purposes of agriculture
  • Cottages and buildings occupied by farm workers

The farmhouse question

Farmhouses are a common area of dispute with HMRC. To qualify for APR, the farmhouse must be:

  • Occupied by someone actively involved in farming the land
  • Of a character appropriate to the agricultural land
  • Proportionate in value to the farm (HMRC often challenges farmhouses worth more than the farming land and buildings)

A farmhouse used as a retirement home after the farmer stops working, or one that has been substantially extended beyond agricultural needs, may not qualify for APR.

Environmental land management agreements

APR has been extended to land subject to certain environmental land management agreements (such as SFI and Countryside Stewardship). This means land taken out of agricultural production for environmental purposes may still qualify for APR, protecting farmers who participate in agri-environment schemes.

What assets qualify for BPR

BPR covers business assets used in the farming trade that are not agricultural property. For farms, this typically includes:

  • Tractors, combine harvesters, and other machinery
  • Livestock (breeding stock and trading animals)
  • Harvested crops and grain in store
  • Trading stock (feed, seed, fertiliser)
  • Partnership interests in a farming partnership
  • Shares in a family farming company

Important exclusions

Some assets do not qualify for BPR:

  • Investment assets (property let to third parties)
  • Holiday let cottages (treated as investment, not trading)
  • Land let out under grazing licences or farm business tenancies (may qualify for APR instead if agricultural)
  • Excepted assets - assets not used in the business

The 2-year ownership rule

To qualify for either APR or BPR, the property or asset must have been owned by the deceased for at least 2 years before death. For inherited property, the previous owner's period of ownership can count if they also qualified for the relief.

AIM shares

Shares listed on AIM (Alternative Investment Market) only receive 50% BPR relief. This affects farming companies whose shares are traded on AIM.

THRESHOLD 2500000

Farms under £2.5 million

asset value threshold: 2500000

If your total APR and BPR qualifying assets are under £2.5 million (or £5 million for a couple), you will continue to receive 100% relief and pay no inheritance tax on those assets.

However, you should still:

  • Get a professional valuation to confirm your position
  • Consider future value increases (land prices can rise significantly)
  • Review your will to ensure reliefs apply correctly
  • Check that your farmhouse qualifies for APR

How to calculate your potential IHT liability

To understand your exposure, estimate your total estate value and how it splits between APR-qualifying, BPR-qualifying, and non-qualifying assets.

Step 1: Get a current valuation

Instruct a qualified agricultural valuer (RICS or CAAV member) to value:

  • Agricultural land and buildings at agricultural value
  • The farmhouse (with and without APR)
  • Machinery and livestock
  • Non-agricultural assets (diversified businesses, let property)

Step 2: Categorise your assets

Asset category Typical relief
Farmland, farm buildings APR at 100% to threshold, 50% above
Farmhouse (if qualifying) APR at 100% to threshold, 50% above
Machinery, livestock BPR at 100% to threshold, 50% above
Let cottages, diversified property Likely no relief - full 40% IHT
Personal assets, savings No relief (use nil-rate band)

Step 3: Calculate liability - worked example

Example: A farm worth £4 million

  • APR/BPR qualifying assets: £3.5 million
  • First £2.5 million: 100% relief = no IHT
  • Next £1 million: 50% relief = £200,000 IHT (20% of £1m)
  • Non-qualifying assets: £500,000 - use nil-rate band (£325,000) + residence nil-rate band (£175,000) = no IHT if passing to direct descendants
  • Total IHT: £200,000

Without APR/BPR relief: the same estate would face significantly higher inheritance tax (100% of value above nil-rate bands at 40%).

PARTNERSHIP Requirement

Family farming partnerships

If your farm operates as a partnership, each partner's share of the partnership assets is valued separately for IHT purposes. This can be beneficial:

  • Each partner has their own £2.5 million APR/BPR threshold
  • Partnership interests qualify for BPR at 100% to threshold
  • Careful structuring of capital accounts can help succession planning

Review your partnership agreement to ensure succession provisions work with the IHT rules. Consider whether the current profit and capital sharing arrangements are optimal for your succession plans.

LIMITED COMPANY Requirement

Family farming companies

Shares in an unquoted trading company (including family farming companies) can qualify for BPR. However:

  • The company must be carrying on a trade (not mainly investment)
  • Shareholdings must have been held for 2 years
  • The combined APR/BPR threshold of £2.5 million applies

If your farm is already incorporated, or you are considering incorporation, take specialist advice on how the rules affect your position. Incorporation can have benefits for lifetime tax planning but may complicate IHT.

Payment options if IHT is due

If inheritance tax is due on agricultural or business property, the estate can pay in instalments rather than finding the full amount immediately.

This payment option may make it possible to pay IHT from farm income without selling land. However, you need to model whether the farm can generate sufficient cash flow to meet the annual instalments.

Action steps for succession planning

Farmers should take a proactive approach to inheritance tax planning:

  1. Get a professional valuation

    Instruct a RICS or CAAV agricultural valuer to value your farm, separating agricultural value from market value where relevant. This is essential to understand your exposure under the current rules.

  2. Review your will

    Check your will takes full advantage of APR and BPR. Married couples should ensure both nil-rate bands and both APR thresholds are used (correct drafting is essential). Consider whether assets should pass in a different order.

  3. Consider lifetime giving

    Gifts of agricultural property or business assets can become exempt after 7 years (potentially exempt transfers). Weigh this against losing your CGT base cost and the risk of dying within 7 years. Gifts with reservation of benefit do not work.

  4. Review your business structure

    If farming as a sole trader, would a partnership with your successor give more flexibility? If already incorporated, is the shareholding structure optimal? Get professional advice on the best structure for your situation.

  5. Consider insurance

    A life insurance policy written in trust can provide funds to pay IHT without forcing a farm sale. The premiums may be expensive for older farmers, but the certainty can be valuable.

  6. Document everything

    Keep evidence of active farming. HMRC may challenge APR claims years after death. Document who lives in the farmhouse and their role in the farm business.

When to seek professional advice

This guidance provides an overview, but inheritance tax planning for farms is complex. Seek professional advice if:

  • Your farm is worth more than £2 million
  • You have diversified income streams (holiday lets, renewables, contracting)
  • Your farmhouse is a significant proportion of the total value
  • You are considering lifetime gifts or restructuring
  • You have children or successors with different interests
  • You want to retire but remain living in the farmhouse

Who can help

  • Solicitor - for will drafting and legal structures
  • Accountant or tax adviser - for tax calculations and planning
  • Agricultural valuer (RICS/CAAV) - for asset valuations
  • Financial adviser - for insurance and investment options

Look for professionals with specific agricultural experience. The sector has unique rules that generalists may not understand fully.