Introduction

Business Property Relief (BPR) and Agricultural Property Relief (APR) are Inheritance Tax (IHT) reliefs available to individuals and trustees on eligible business and agricultural assets. 

The reliefs can reduce the value of the assets for IHT purposes by either 50% or 100%. There is no cap on the value that can be relieved using BPR or APR, so these reliefs can be very valuable. 

The reliefs are applied when assets are transferred and an IHT charge would otherwise arise, such as on death of an individual or when assets are given to or from the trustees of certain types of trust that are within the scope of IHT charges. 

Relief may be restricted in some cases where there are liabilities, even if the debts are not secured on the business or agricultural assets. A separate briefing on deduction of liabilities is available on request.

Business property

Qualifying property

The level of BPR available depends on the type of business property. 

The following property is eligible for 100% BPR: 

• Property consisting of a business or an interest in a business, which includes an interest in a partnership; 

• Any unquoted shares in a trading company; 

• Securities of an unquoted company that, either by themselves or together with other interests in the company owned by the person making a transfer of value (the ‘transferor’) for IHT purposes, gave the transferor control of the company immediately before the transfer. 

The following property is eligible for 50% BPR: 

• Quoted shares or securities where the transferor has control of the company immediately before the transfer; 

• Land, buildings, machinery or plant which, immediately before being transferred, were used wholly or mainly for a business carried on by a company of which the transferor had control or by a partnership of which the transferor was a member; 

• Land, buildings, machinery or plant held in a trust in which the transferor had a right to trust income, where the settled assets were used wholly or mainly for the purposes of a business carried on by the transferor.

Shares and securities are regarded as being ‘quoted’ if they are quoted on a recognised stock exchange. Shares traded on the Alternative Investment Market (AIM) are generally treated as being unquoted. 

Qualifying activity 

Only certain types of businesses qualify for relief. Business activities do not qualify where they wholly or mainly consist of dealing in securities, stocks or shares, land or buildings or the making or holding of investments. 

Similarly, shares or securities held in companies will not be eligible for relief where the companies concerned do not themselves satisfy these tests. This restriction is relaxed in the case of a company that wholly or mainly acts as the holding company of a group where one or more of its subsidiaries undertakes qualifying activities. Similarly, market-making companies are treated as undertaking a qualifying activity. 

Where “excepted assets” are held by the business, BPR is restricted by leaving these assets out of the calculation when determining the amount of relief. 

An asset is an excepted asset if it is: 

• Not used wholly or mainly for the purposes of the business throughout the two years immediately before the transfer (or since its acquisition by the business if more recent), and 

• Not required at the time of the transfer for identified future use for the purpose of the business; or 

• Used wholly or mainly for the personal benefit of the transferor, or a person connected with the transferor (e.g. the spouse, a child or other relative of the transferor). 

In some cases, large cash balances may be treated as excepted assets if it cannot be shown that the cash is required for current or future use by the business. 

Where the business is within a company, the proportion of the value of the shares that is attributable to the excepted assets held by the company will not attract relief.

Minimum period of ownership

Generally the property must be owned for at least two years immediately before being transferred, although there are special rules where property is replaced by other qualifying assets, or where a business is incorporated. In addition, there are relieving provisions where a surviving spouse or civil partner inherits assets that qualified in full for BPR, so that the earlier period of ownership by the deceased goes towards the survivor’s period of ownership provided all the other requirements are met.  

In addition, there are ownership conditions which apply when business property is the subject of a lifetime gift – see below.

Agricultural property

Qualifying agricultural property

As with BPR, the level of APR available on transfers of property depends on the type of property being transferred. While BPR is available on assets irrespective of where they are located, APR is only available on UK assets and, until 5 April 2024, on assets situated in the Channel Islands, Isle of Man or European Economic Area. Relief will not be available on assets in the aforementioned non-UK jurisdictions from 6 April 2024. 

APR is given in priority to BPR, but BPR can potentially apply to the value of assets in the farming business that are not covered by APR. 

The following types of asset are eligible for 100% APR: 

• Property in which the donor, immediately prior to the gift, carried the right to vacant possession or the right to obtain it within the next 12 months; 

• Certain property which does not satisfy the above condition because the property was let on a tenancy which began on or after 1 September 1995; 

• Eligible property in which the donor held their interest prior to 10 March 1981. 

In all other cases, the rate of APR is 50%.

APR can also apply to shares or securities if their value can be attributed to the agricultural property which forms part of the company’s assets and provided the shares or securities give the individual control of the company. Additional conditions must also be met. 

Qualifying activity

Agricultural property is defined as the following: 

• Agricultural land or pasture; 

• Woodlands and any buildings used in connection with the intensive rearing of livestock or fish, where the woodlands or buildings are occupied together with the land and are of a character appropriate to the agricultural property concerned; 

• Property and buildings used in connection with the breeding and rearing of horses on a stud farm, including associated grazing. 

APR provides relief limited to the “agricultural value” of the property. This is the value the property would have if it were subject to a perpetual covenant prohibiting its use otherwise than as agricultural property. This typically means that land with development value typically has a value in excess of the value that will be relieved by APR, though BPR may apply to the unrelieved element in some cases. 

Assets such as livestock, plant and machinery and harvested crops do not qualify for APR but may qualify for BPR.

Minimum period of occupation or ownership

The general rule is that APR will not be available unless the property was: 

• Occupied by the donor for the purposes of agriculture throughout the period of two years ending with the date of transfer; or 

• Owned by the donor throughout the period of seven years prior to the transfer, and it was occupied during that period by someone for the purposes of agriculture. 

Whilst these are the general rules, there are a number of exceptions, including those that deal with replacement property and farming businesses that are incorporated. As with BPR, there are also special rules ownership conditions which apply when the property is the subject of a lifetime gift – see below.

Additional rules for BPR and APR

Lifetime gifts 

There are specific rules that deal with the position where a donor has made a potentially exempt transfer of business or agricultural property and fails to survive the making of the gift by at least seven years. In order for relief to be available, further conditions have to be met. In general terms, these are that the recipient of the gift must still own the gifted property at the date of the donor’s death (or the donee’s death if that is earlier), although this rule is relaxed where the recipient has sold the asset concerned and replaced it with an equivalent asset is acquired within the following three years. 

In the case of BPR, the assets must still qualify for the relief at that date. In addition, where APR applies, the property must be occupied for the purposes of agriculture throughout. 

Buy and sell agreements

Neither BPR nor APR is available if there is a binding contract for sale in place at the time of the transfer. This can include contractual arrangements committing the owner to sell the BPR or APR assets, and others to buy them, in certain circumstances. This is particularly relevant to owner-managers of private companies and some partnerships, where surviving shareholders and partners may wish the deceased’s interest to pass to others working in the business. 

BPR and corporate investment activities

It is comparatively easy to lose the full benefit of BPR where a company or a group of companies undertake investment related activities unrelated to their qualifying business activities. For this reason, it is important to keep the activities of a company or a group of companies under periodic review.