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HMRC internal manual

Inheritance Tax Manual

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HM Revenue & Customs
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Value and Valuation: Excess of value over agricultural value, interaction with business relief

It is possible that the conditions for both business relief and agricultural relief may be satisfied in respect of the same property. To prevent double relief, IHTA84/S114 (1) provides that any part of the value transferred which is reduced by agricultural relief (at whatever rate), or would be so reduced but for IHTA84/S121 (3), cannot be reduced by business relief. (IHTM24133)

As business relief and agricultural relief do not have to be claimed by the taxpayer, the effect of IHTA84/S114 (1) is that it is not possible for the taxpayer to choose between them.

IHTA84/S114 (1) operates by preventing the same part of the value transferred being reduced by both business relief and agricultural relief, giving priority to agricultural relief. However, business relief may be due on value which is not subject to agricultural relief if it is attributable to property that under IHTA84/S105 (1) qualifies as relevant business property (IHTM25141).

The open market value of agricultural property may exceed its agricultural value (IHTM24150), for example, because the land has planning permission, there is development or amenity value, or mineral value (such as gravel or sand). A difference between the open market values and the agricultural values often occurs on farms where there are ranges of traditional buildings suitable for conversion into residential or commercial use; in many areas these can have significant excess value. Agricultural relief will not be available in respect of the excess value. However, business relief may be available in the alternative. Care should be taken to confirm that the parts of the farm with excess value for non-agricultural use are actually used as an asset of a qualifying business if business relief is claimed. Problems frequently arise with traditional buildings suitable for development that are obsolete for modern farming methods and have not been used for the business for some considerable time.

If the deceased/transferor is involved in farming as a sole trader then business relief will be available at 100% on the agricultural property which also constitutes relevant business property, IHTA84/S105 (1)(a). This will also be the case if the deceased/transferor was a partner in a partnership that owns the land as a partnership asset.

If the land was owned by the deceased and occupied by a partnership of which the deceased/transferor as a member, then business relief will be due at 50%, IHTA84/S105 (1)(d).

Where the deceased owned (IHTM24100) land occupied (IHTM24070) by a partnership of which he was a member by way of an agricultural tenancy and 100% relief is due because the transitional provisions (IHTM24145) apply, business relief (IHTM25131) at 50% will be due on the excess over the agricultural value provided and to the extent that the land/buildings were occupied for the purposes of the business. If, however, the deceased was not a member of the partnership farming the land, business relief will not apply.

Where the deceased’s land was let to a company claimed to be controlled by them directly, or through the application of the related property (IHTM09731) provisions, SAV can confirm the position. If there was no formal tenancy, then where the land was occupied by a company controlled by the deceased, business relief will be due at 50% on any excess value.

If the land was let out to a tenant farmer who occupied it for the purposes of their own farming business, then business relief will rarely apply.

In the case of a farmhouse or other residence situate on a farm, business relief will not usually be available on the difference between the agricultural value and the open market value. This is because the main use will be as a residence rather than for the purposes of the business.

You can find an example of how these two reliefs interact at IHTM25121.