Replacement property: Example of limiting the relief
A owns and farms Orchard Farm and has done so for a number of years.
In October 1988, A sells Blackacre for £600,000 and buys Manor Farm for £800,000 to increase the scope of his farming operations. Both transactions are at arm’s length. Both prices are wholly attributable to agricultural value.
In April 1990, A dies. Manor Farm then has an agricultural value of £1,000,000. The two year occupation condition in IHTA84/S118 (1) is satisfied.
A practical way to give effect to IHTA84/S118 (3) in such circumstances is to adopt the following apportionment:
- The agricultural value of Orchard Farm at time of sale (on the facts, the sale price), divided by
- the agricultural value of Manor Farm at the time of the purchase (on the facts, the purchase price), multiplied by
- the agricultural value of Manor Farm at date of death or in figures
Or (£600,000 ÷ £800,000) × £1,000,000 = £750,000
The result of this approach is that on A’s death the agricultural relief on Manor Farm is limited to £750,000. The excess of £250,000 does not qualify for relief. You should ignore the costs of sale and of purchase.
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