We often suggest to our land owning clients that to benefit from Agricultural Property Relief (APR), which can give up to 100% Inheritance Tax relief on the agricultural value of land, they need to be accepted as farming their land. One way of demonstrating this is by the use of grazing agreements or profit a prendre agreement.
Grazing agreements enables someone other than the landowner to graze the land or take a cut of grass for a licence fee. They are usually for a short period and essentially are there to reflect that the landowner has grown a grass crop which is then sold to the grazier (i.e. an act of husbandry). To demonstrate that the landowner is farming, it is important that they remain responsible for growing the crop (including fertilising the land) and maintain and repair fencing and carry out any hedge cutting. The landowner can also claim basic payment scheme on the land.
A profit a prendre agreement is very similar to a grazing agreement with the main distinction being that a grazing agreement often allows for the grazier to mow the land whereas a profit a prendre agreement usually does not.
On this basis, if a landowner has a grazing agreement and can demonstrate they are farming the land an APR claim should be successful. At least that should be the case when cattle and sheep graze the land as this is regarded as an agricultural activity. The grazing of land by horses, however, is not regarded as an agricultural activity (unless it is part of a stud farming activity) and it is therefore unlikely that land grazed by horses would qualify for APR.
This small distinction between agricultural grazing and horse grazing could have a significant impact on Inheritance Tax liabilities. It is therefore important to ensure that any agreements over land do not jeopardise any Inheritance Tax reliefs and we urge our clients to consider carefully whether the grazing of land by horses will have a detrimental effect on APR. A short term income stream may have negative consequences on long term Inheritance Tax planning.
For help and advice, please contact Claire Rigby.