28% increase in HMRC investigations into Agricultural Property Relief claims

by | Aug 30, 2022

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The number of investigations that HMRC has opened into claims for Agricultural Property Relief has increased by 28% in the last year, jumping from 217 investigations to 278 in the last 12 months, says Boodle Hatfield, a leading private wealth law firm.

Owners of agricultural land can pass it on to their children or others without incurring an inheritance tax bill, by claiming Agricultural Property Relief. To qualify, the land must be used for agricultural purposes, such as growing crops or the rearing of livestock for the requisite period (either two years or seven years) before it is passed on.

HMRC will investigate claims for Agricultural Property Relief (APR) when it suspects land is not being farmed commercially. HMRC may reject a claim for Agricultural Property Relief for a number of reasons, such as:

  • The claimant lives in the farmhouse, but plays no part in farming the land, this being someone else entirely who lives offsite. In this instance, the farmland may still be eligible, but the farmhouse will be liable for IHT.
  • The size and value of the farmhouse is not commensurate to the size and value of the farmland. This may be the result of extending the farmhouse or previous sales of farmland reducing the total acreage.
  • The farm’s ‘outbuildings’ are located some distance away. This could suggest that the outbuildings are not used for agricultural purposes.
  • Farmworkers’ cottages are being used for holiday lets, rather than agricultural purposes.
  • The land has been used for ‘rewilding projects’, which are not eligible for APR, e.g. trees or wild meadows.

After a farmer retires, there is also a risk that HMRC may no longer consider the farmland as being used for agricultural purposes. Kyra Motley, Partner at Boodle Hatfield, says that owners of agricultural property should seek professional advice on how to maintain the land’s eligibility for the relief.

Kyra Motley says: “HMRC appears to be stepping up investigations into Agricultural Property Relief in a bid to crack down on potential abuse of the relief.”

“Families that have been farming for generations will be keen to avoid having to sell off land to pay a hefty tax bill. Taking informed steps to ensure appropriate records are held as proof of the land’s agricultural value is essential.”

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