APR Qualifying Property and the 100% vs 50% Rate
APR under ss.115-124B IHTA 1984 applies to agricultural property in the UK, Channel Islands, or Isle of Man: agricultural land (arable, pasture, orchards, market gardening); farmhouses (character-appropriate to the farm; occupied by the farmer for agricultural purposes — not a premium residential property that happens to adjoin farmland); farm buildings (cottages, storage buildings, intensive livestock buildings, fish farms); short rotation coppice; Habitat Scheme land. Non-agricultural excess: APR only covers the agricultural value — a farmhouse with premium residential appeal is taxable on the excess above agricultural value. Two-year ownership test: 2 years' ownership and occupation for agriculture required. 100% APR: in-hand land (farmed by the owner); FBT land (ATA 1995 — short-term; no succession rights; landlord can recover vacant possession; HMRC treats as having benefit of vacant possession); or land where vacant possession will be available within 12 months of the transfer date. 50% APR: AHA 1986 tenanted land — full security of tenure; statutory succession rights (up to two generations); landlord cannot recover possession readily; 50% APR on the agricultural vacant possession value of the tenanted property.
2024 Budget APR/BPR Cap and Succession Planning
2024 Autumn Budget (30 October 2024): from 6 April 2026, APR and Business Property Relief (BPR) subject to a combined £1 million nil-rate band. First £1m: 100% APR/BPR (nil IHT). Above £1m: effective 20% IHT rate (50% relief on excess; 40% IHT on the remaining value). No transferable allowance between spouses (unlike standard NRB). PETs made before 6 April 2026 that become chargeable on death on or after 6 April 2026 will be subject to the new rules. Succession planning options: (i) PET lifetime gifts — give agricultural property now; IHT-free if donor survives 7 years; old unlimited APR may apply to the PET period depending on transitional rules; take specialist advice; (ii) spouse equalisation — structure ownership between spouses to use both partners' £1m APR/BPR limit (potentially £2m combined); (iii) FBT conversion — surrender AHA 1986 tenancy; re-grant as FBT; converts 50% to 100% APR on vacant possession value; requires tenant cooperation; SDLT/LBTT considerations; (iv) discretionary trusts — APR available on periodic and exit charges; complex interaction with new £1m limit; (v) farmhouse valuation review — professional agricultural valuation to establish the true agricultural value and minimise the non-agricultural excess subject to full 40% IHT.