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HMRC internal manual

Inheritance Tax Manual

The rate of relief: Transitional provisions for relief (working farmers’ relief) at the higher rate for let land

You should seek advice as appropriate where transitional relief is claimed, or where you think it may be due.

Under the general scheme for agricultural relief, agricultural property (IHTM24030) let before 1 September 1995 is eligible for relief at the lower rate (IHTM24140). However where the deceased/transferor had been beneficially entitled (IHTM04031) to the interest transferred since before 10 March 1981 relief is available at the higher (vacant possession) rate on the first transfer of that interest after that date, provided the conditions, see below, of IHTA84/S116 (3) are met.

The reason for these provisions is that before 10 March 1981, the tenure of the land had not been relevant in establishing whether or not the former agricultural relief applied. Consequently, many farmers had arranged their affairs to suit the circumstances of that relief. So that these farmers would not be disadvantaged by what is now the current relief, the transitional provisions ensure that the higher rate of relief continues to apply where appropriate.

Conditions for the application of the transitional provisions

The transitional provisions under IHTA84/S116 (3) may apply where agricultural property is subject to a tenancy which is either

  • an asset of a partnership of which the deceased or transferor was a member or
  • held by a member of the deceased’s or transferor’s family in succession to the deceased or transferor, or
  • held by an unquoted company in which control was held throughout the period from 10 March 1981 to date of death/transfer by the deceased/transferor (and, if appropriate, their spouse).

and the conditions for the former agricultural relief under FA75/SCH8 would have been satisfied if the deceased/transferor had disposed of his interest by a transfer of value immediately before 10 March 1981.

The conditions imposed are that

  • had the let land been transferred immediately before 10 March 1981 it would have qualified for the former agricultural relief under FA75/SCH8, and
  • the owner had not, and could not have had, the right to vacant possession at any time between 10 March 1981 and the date of death/transfer. For the purposes of this transitional relief, the value and acreage limits of £250,000 and 1,000 acres (or 404.7 hectares) contained in the former agricultural relief are re-imposed, but with provision under IHTA84/S116 (4) that any excess qualifies for relief at the lower (let land) rate.

IHTA84/S116 (5) stipulates that in deciding whether those limits are exceeded it is necessary to take into account not only all relievable chargeable transfers of agricultural land (whether let or vacant) made before 10 March 1981 but also

  • any other transfers of let land made on or after that date which qualified for this transitional relief at the higher (vacant possession) rate, and
  • (exceptionally) any transfers of value attributable to the value of a controlling shareholding in a company owning agricultural property. This would be so if, for example, the transferor, being a ‘working farmer’ (the primary term for relief under Sch 8 FA’ 75), was the controlling shareholder of a company which owned agricultural land but had, before 10 March 1981, let that land to a partnership consisting of itself and others. Any such case should be referred to SAV
  • You should seek advice on any case where difficulties arise.

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Supplementary transitional provisions under IHTA84/s120(2)(b) and (c)

The supplementary transitional provisions apply where the transferor acquired the agricultural property (IHTM24030) on the death of their spouse or civil partner (IHTM11032) after 9 March 1981. The provisions do not apply where the transferor acquired the property as a lifetime transfer.

Where this condition is met, the deceased/transferor will be entitled to transitional relief on the first transfer of value (after that death) of that property provided that the spouse or civil partner from whom it was inherited would have been entitled to such relief, and neither they nor the deceased/transferor had vacant possession or the right to obtain it (IHTM24140) at any time in the period beginning on 10 March 1981 and ending on the date of the transfer.