I think I know the answer but APR is not something I get involved with very often so confirmation would be appreciated.
Client lets a neighbouring farmer graze animals on her land for £500 a year. She does not undertake any farming duties. So, no APR…
My understanding is that a grazing licence may qualify for APR, depending upon the allocation of obligations between the licensee and the land owner, so there might still be hope!
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Ahhh…ok. Any pointers where I may find out more about this?
Thanks for responding…
You can get APR on land you rent out. You don’t have to farm it but you must have owned it for longer. Rate depends on nature / date of tenancy (eg AHA, FBT, although may not be in place here).
The relevant IHT form for claiming it, and the supporting guidance is a good place to start. Do you have access to an online library service (Lexis Nexis, PLC etc)? They will cover it.
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Charnley and another v HMRC [2019] UKFTT 650 seems to be the main case
Commentary from 18 St Johns Street Chambers, Manchester on that decision: PROVING AVAILABILITY OF AGRICULTURAL PROPERTY RELIEF WHERE AGEING FARMER DID LESS ‘HANDS-ON’ FARMING - 18 St John Street Chambers (18sjs.com)
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Thanks both…I have access to Practical Law…I did look up occupier/ownership test…and also my STEP Tax Manual…couldn’t find what felt was conclusive enough.
Thanks again….
[
Agricultural Relief for Inheritance Tax
www.gov.uk
](Agricultural Relief for Inheritance Tax - GOV.UK)
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One of the best explanations of when land qualifies for APR is in the Inland Revenue Bulletin covering agriculture from 2005 which can still be found.
"APR applies to agricultural property which has been either occupied by the transferor for agricultural purposes for the two years immediately before the transfer, or owned by the transferor throughout the seven years immediately before the transfer and throughout that period has been occupied for agricultural purposes whether by the transferor or by another ([section 117]
Agricultural land which is taken out of production can still qualify for APR (including GAEC land) because [section 117]) IHTA does not require the land to be in production either continuously or at a specific time (though there must be an intention or expectation that the land will be back in production at some time in the future). So, for example, agricultural land set aside to rotational, or even permanent, fallow can still qualify as agricultural property within the definition of IHTA 1984 and as occupied for the purposes of agriculture within the meaning of [section 117]
Land used for grazing leisure horses does not satisfy the “occupied for the purposes of agriculture” test and so cannot qualify for APR."
Land used for grazing cattle should qualify regardless of any agreements. It is a question of fact, although agreements are always helpful as evidence. See also S996 Income Tax 2007 for income tax definition. Ignore reference to horses as land used for breeding horses does qualify for APR whereas land used for grazing adult horses generally does not.
Thank you…that is really useful.
And thanks all for your replies…
A tip from an accountant: the income form the grazing licence should be reported as self employment trading income on the tax return and not as rental income. This supports the assertion that there is a farming trade.
See HMRC BIM55065
Jane Evans
Jane Evans Taxation Limited
Thank you Jane, that is very helpful.
In this case no money changes hands as the rent is offset as the farmer cuts her hedges etc. Would that arrangement be something that they should adapt?
The fact that no money changed hands is not relevant. See this article by Julie Butler:
https://www.butler-co.co.uk/articles/the-barter-systempdf
However, trades with turnover of less than £1,000 have been of no interest to HMRC since the introduction of the ‘trading allowance’ and taxpayers may omit the self employment pages (and answer question 2 on the main from in the negative) if the aggregate t/o from all trades is below £1K.
Although including the £500 income on the SE pages does no harm, I think that it will carry very little weight if you need to argue that the landowner is in occupation. You only need to make this argument, of course, if the death is in years 3 to 7 or if the land is worth more than its agricultural value. The latter circumstance would then lead to the wholly or mainly making or holding investments question. See the recent wedding barn case.
HMRC’s view on grazing licences is at IHTM24073.
