IHT reliefs and mixed estates

06 November 2019

Tax laws are complex and it is sensible for the owners of diverse businesses to keep their ownership and business structures under review. This article focusses on Inheritance Tax (IHT) considerations.

Assets which are subject to IHT are generally subject to either (i) IHT at a rate of 40% of market value of assets on the death of the beneficial owner, or (ii) IHT at a rate of up to 6% of the market value of taxable assets held in a trust fund assessed every ten years or on exit from the trust structure. 

These rates are subject to availability of applicable reliefs and allowances, and the two most useful to those operating a farming business are Agricultural Property Relief (APR) and Business Property Relief (BPR).


APR is available on agricultural property, which is defined as:

  • agricultural land or pasture
  • woodland ancillary to and occupied with the agricultural land or pasture
  • buildings used for intensive livestock or fish if ancillary to occupation of the land
  • cottages, farm buildings and farmhouses where the character is appropriate to the agricultural land or pasture.

APR is available where the relevant asset has been either (a) occupied for 2 years or (b) owned for 7 years. The occupation condition would be satisfied if a company controlled by the taxpayer was in occupation, and in this context control means control of powers of voting on all questions affecting the company as a whole which, if exercised, would yield a majority of the votes.

The rate of APR is 100% where:

  • vacant possession of the land is obtainable within 12 months
  • the property was let on a tenancy created on or after 1 September 1995; or
  • the land is let but with vacant possession value (for example it is let to a company controlled by the landowner).

In most other cases the rate of APR is 50%.

APR is restricted to agricultural value. It does not therefore capture any development (hope) value or any mineral value under the land.


BPR applies to:

  • a trading business or interest therein (such as a sole trader or Partnership) (at a rate of 100%)
  • shares in an unquoted trading company (at a rate of 100%)
  •  a controlling holding in a quoted trading company (at a rate of 50%)
  • land, buildings, machinery and plant used by (but not owned by) a business of which the owner is a sole trader or is a partner or by a company controlled by the owner (at a rate of 50%).

BPR is available when the asset has been owned for more than two years.

BPR is not limited to the agricultural value of agricultural assets which form part of a trading business or interest therein, so development value and mineral value would be captured by the relief.

For mixed estates, i.e. those with trading assets (such as land farmed in hand and agricultural buildings used in the trade), investment assets (such as land let on a Farm Business Tenancy and cottages let to residential tenants), and excepted assets (such as dwellings not occupied in connection with the trade and any associated grounds), restructuring of the farm business can be undertaken to potentially secure relief from IHT for those assets which would normally not qualify for APR nor, on their own, for BPR.

The aim for such an estate would be to create one composite business, including the trading and investment assets (and in some circumstances excepted assets) which will be, and which will be viewed by HMRC as, a business which is not wholly or mainly making or holding investments. This can be achieved by ensuring that the investment activities of the business are ancillary to its trading activities. Essentially this means that 51% or more of the activities of the business need to be trading activities. This percentage is assessed by reference to capital values, turnover, profits, management time and the overall context of the business, and accountancy advice should be sought at an early stage of any restructuring to ensure the correct balance is struck.

There are proposals for the law to be changed so that the balance in favour of trading has to exceed 80%, and so it is important that any arrangements entered into are kept under review.

Consideration also needs to be given to the most appropriate business structure in which such assets should be held, and this will depend on a number of factors, including the nature of the parties involved in the business (i.e. whether individuals, corporate entities or trusts), the taxation of profits and whether the liability of any party is to be limited. The most common scenario is for there to be an existing family farming partnership, into which assets can be introduced (or from which assets can be removed) to achieve the correct balance (although any Stamp Duty Land Tax implications of any such introduction will also need to be considered).

If you are the owner of a mixed estate then we would be pleased to assist in any review or restructuring you might wish to undertake in order to mitigate your IHT liability.

The content of this article is for general information only. For further information, please contact Leo McMahon or a member of Birketts' Agricultural Team. Law covered as at November 2019.