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HMRC internal manual

Inheritance Tax Manual

Lifetime transfers: The ‘original property’

The four conditions (IHTM24173) operate by reference to the ‘original property’, which is defined in IHTA84/S124A (8) as either

  • the agricultural property IHTM24030) to which IHTA84/S116 applied in relation to the transfer, in other words, the subject matter of the transfer, or
  • shares or securities (IHTM24175) of a company owning agricultural land to which IHTA84/S116 applied in relation to the transfer because of IHTA84/S122 (1).

Where the value transferred is greater than the value of the property transferred, relief is available for the whole of the loss to the transferor’s estate, (IHTM04054) including the depreciation in the value of property retained by the transferor, if the additional conditions are satisfied in relation to the ‘original property’. It does not matter that at the time of death, the property retained by the transferor may not qualify for agricultural relief.

Example 1

A retires from farming and makes a gift of the farmland, but retains the farmhouse and garden to live in. The loss to A’s estate is the value of the agricultural land given, plus the loss in value of the farmhouse because of its separation from the land. At the date of gift, the value transferred qualifies for agricultural relief. The transferee retains and farms the farmland.

On A’s death within seven years, all four conditions are satisfied. Accordingly, the whole of the value transferred by the PET (IHTM04057), including the decrease in value of the farmhouse qualifies for relief. The fact that in A’s estate, the farmhouse is no longer agricultural property (as A’s estate contains no land for the farmhouse to be of a character appropriate (IHTM24050) to) is not relevant in considering whether the gifted farmland qualifies.

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Example 2

If the gift above had been reversed, so the transferor gave away the farmhouse, but retained the land, the farmhouse may not be agricultural property at the death of the transferor. If the character appropriate and occupation tests are not satisfied when considering the farmhouse as part of the transferee’s estate, although the farmhouse qualified for relief at the time of the transfer, the relief may not apply now.