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HMRC internal manual

Inheritance Tax Manual

The rate of relief: Introduction

Once you have established that you are dealing with agricultural property (IHTM24030) that is occupied for agricultural purposes (IHTM24060), you will need to establish the rate of agricultural relief that is due.

There are two rates of agricultural relief for IHT:

  • a higher rate at 100%. Originally this rate of relief was intended to benefit working farmers. It was available where the deceased/transferor’s interest in the property immediately before the transfer carried with it the right to vacant possession (IHTM24141) or the right to obtain it within the next twelve months [IHTA84/S116 (2)(a)]. Over time the circumstances in which the higher rate of relief is due has been extended to cover a number of additional situations, described below, where the deceased / transferor let land.
  • a lower rate at 50% for other let land.

With effect from 10 March 1992 under F(No2)A92/SCH14/para8 & 9,

Before 10 March 1992 the rates of relief were:

  • the higher rate was 50%
  • the lower rate was 30%.

The situations where the higher rate of relief applies are as follows:

  • where the interest of the deceased/transferor in the property immediately before the transfer carries with it the right to vacant possession (IHTM24141) or the right to obtain it within the next twelve months, IHTA84/S116 (2)(a). This will include land let on grazing licences (IHTM24142), which are essentially for less than a year
  • ESC F17 applies (IHTM24144) to extend the period of 12 months specified in IHTA84/S116(2)(a) to 24 months
  • property is let on a tenancy beginning on or after 1 September 1995 (IHTM24240)
  • the transitional provisions (IHTM24145) for let property apply, IHTA84/S116 (2)(b)

Where, in relation to a potentially exempt transfer that became chargeable as a result of the donor’s death, the rates as at date of death apply.

For immediately chargeable transfers the rates as at date of transfer apply, but the rates as at date of death apply for the purpose of calculating the additional tax charge (IHTM24180) by reference to the transferor’s death. The value for cumulation remains as calculated at the time of the transfer by reference to the rate of relief applying at that time.

Whether the higher or lower rate of relief applies to a lifetime transfer depends on the facts at the date of transfer, not the date of death, even where the tax is payable only because of the transferor’s death, as is the case with potentially exempt transfers.

For property within the European Economic Area (IHTM24256) but outside the United Kingdom, Channel Islands and Isle of Man, the right to or to obtain vacant possession will need to be considered on the basis of any equivalent rights (or lack of such rights) under the law governing dispositions of that property, in the Country or State where it is held, IHTA84/S116(7A).