A recent decision by the Special Commissioners in Belfast highlighted a distinction between Agricultural Property Relief (APR) and Business Property Relief (BPR) that is of importance to anyone who owns agricultural land. The case has the snappy title of ?Philip Norman McCall and Bernard Joseph Anthony Keenan (personal Representatives of Eileen McClean deceased) v The Commissioners for HM Revenue and Customs?, and it dealt with APR and BPR.



When you die, Inheritance Tax (IHT) is payable on the value of your estate to the extent it is greater than the ?nil rate band? which is currently ?312,000. There are a number of reliefs that can be claimed, and the two most important are BPR and APR.

APR reduces the value of ?agricultural property? in your estate by up to 100%, giving what is effectively an exemption from IHT, providing certain conditions are met. It would take a book to cover the detail of this, but what we are concerned with here are the exemptions available when you ?occupy? land ?for the purposes of agriculture?.

Obviously, a traditional farmer who owns and farms his land will qualify for this, but on the margin there are those who own the land but receive payment from someone else for using it. This commonly occurs when a farmer is getting on in years, or perhaps he has died and his widow does not want the trouble of actually farming the land herself. Or perhaps he is a ?lifestyle farmer? who bought the place because he enjoys the country life, but is too busy to farm it himself.

One way in which the ?occupation? condition has traditionally been met in such cases is to let the land for ?grass keep?. Grass keep is an arrangement between the landowner and a third party (?the grazier?). The grazier has the right to graze his animals (sheep or cattle, typically, because horses are not ?agricultural? except in special cases) on the land for a period of less than the full 365 days in any year, and the landowner undertakes to deal with hedging, ditching, mending gates and fences, and generally keeping the land in good condition.

It is well settled in law that a properly drawn up agreement for grass keep has the effect of leaving the landowner in ?occupation? of the land ?for the purposes of agriculture?, so on his death APR can be claimed at 100%.

In fact, 100% APR is also available in most cases where the land is let out on an ordinary tenancy to another farmer, but there are two crucial differences as a result of the landowner no longer being the ?occupier?. One of these is that unless the landowner is also the farmer, the farmhouse occupied by the landowner will not qualify for APR, and the other is that APR is only available on the ?agricultural value? of the land.

The ?agricultural value? of land is its market value estimated on the assumption that it could never be used for anything except farming. If the land has development value because it has planning permission, or even ?hope value? because it might get planning permission in the future, that part of its value is not covered by APR. Those who know their land values will appreciate that, even with the price of farmland up to ?6,000 per acre these days, the development value, or hope value, may well be many times the agricultural value.

This is why it has been considered good tax planning to ensure that the landowner remains in ?occupation? of the land. In the case of a farmer and his land, BPR comes to the rescue where APR fails to provide relief for the full value of the land.

BPR does not draw a distinction between agricultural value and market value. If the landowner is using the land for his trade at the time of his death, then BPR (also at 100%) covers any of the value of the land which is not covered by APR.

There has been a perhaps rather glib assumption that provided you met the ?occupation? condition for APR, you were deemed to be farming the land yourself, so BPR would kick in as described above.

The Special Commissioner in Belfast did not agree. He accepted (indeed it was not in dispute) that APR was due on the land involved, because it was being grazed under an agreement for ?agistment? (which is the Northern Irish equivalent of grass keep), but he did not accept that this automatically meant that it was also eligible for BPR.

The Special went through the written agreements in minute detail, and also looked closely at the evidence of what work was done by the landlord on the land, and he reached the conclusion that although what was done was (but only just) ?a business?, it failed to attract BPR because it was a business of ?making or holding investments?, which is specifically excluded from BPR.

The decision included this description of the grass keep arrangement:

?The activities of the business consisted of the making available of its major asset to other persons for payment without the separate provision of any substantial other goods or services?

More succinctly, the Commissioner also said:

?The land was used not to make (part of) a living on it, but to make (part of) a living from it; it was used as an investment?.

That is a neatly expressed distinction that I expect to appear in letters from HMRC in future when the difference between the agricultural and the real value of land qualifying for APR is important. Just to end with a flavour of the gap between agricultural value and open market value, in the McClean case, the agricultural value of the land was ?165,000.

The open market value was ?5,700,000, because the land had been zoned for development by the local council!

James Bailey

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