Inheritance Tax Awareness - Exemptions (2)

Business Property Relief APR (BPR) and Agricultural Property Relief (APR)

Business property relief (BPR) and agricultural property relief (APR) are IHT reliefs that may be available on the transfer of certain types of assets.  These two reliefs can often reduce the chargeable value of an asset by 50% or 100% and are extremely valuable tools for minimising the amount chargeable to IHT.

Business Property Relief (BPR)

Business property relief reduces the chargeable value of a business asset when IHT is calculated and is applied before any annual exemption. BPR can be applied when gifting both during the lifetime of the donor or in the death estate.

Provided that certain conditions are met, BPR may be applied on specific assets that are classified as ‘relevant business property’ at either 100% or 50%. Relevant business property may include:

Assets eligible for 100% relief:

  • A sole-trading business
  • Partnership shares
  • Shares in an unquoted trading company.

Assets eligible for 50% relief:

  • Shares in a quoted trading company if the individual has voting control i.e. more than 50% ordinary (voting) shares
  • Land, buildings and machinery that is owned by the individual and used in a business that the individual is a partner or a controlling shareholder.

In order for BPR to apply on the above assets, the following conditions must be met:

  • Donors must have owned the property for at least 2 years before the transfer (however there are some exceptions e.g if ‘old’ business property has been replaced with ‘new property’; if the property is gifted to a spouse or civil partner, the period of ownership of the donee and the donor can be aggregated; if there are successive transfers in a two year period, BPR will only be given on the later transfer) 
  •  BPR will only be available if the business is trading at the relevant time.

Despite the above, there are exceptions where BPR will not apply. These include businesses/assets that:

  • Deal in property e.g. investing in properties and renting them out;
  • Hold or make investments;
  • Predominantly deal in securities, stocks or shares;
  • Are subject to a binding contract for sale or in the process of liquidation;
  • Are considered ‘excepted assets’ i.e. an asset that has not been used in the business for the previous two years of the transfer and/or is not require for future use in the business.

Agricultural Property Relief (APR)

Agricultural property relief works in a similar way to BPR, reducing the chargeable value of the transfer for IHT, however the eligible assets and conditions differ. APR may be available on transfers of agricultural property or land that is situated in the UK, the Channel Islands, the Isle of Man or an EEA State. Like BPR, it can be applied when gifting both during the lifetime of the donor or in the death estate.

Provided that certain conditions are met, APR may be applied at 100% or 50% on property or land that is predominantly used to grow crops, rear animals and to fish for human consumption. Assets that qualify for APR include:

  • Agricultural land
  • Woodland
  • Farm buildings
  • Farm houses/cottages (if occupied for the purpose of agriculture).

Activities that are specifically exempt from qualifying for APR include:

  • Land that is used for grazing horses
  • Land used by livestock that is not farmed for human consumption
  • Land that is used for sporting activities such as fishing and shooting.

APR will only be available if the owner of the land/property has had ownership for a certain amount of time, and depending on whether the owner uses or rents out the land, primarily in the circumstances set out below:

  1. The farmer is the owner of the land/property and uses these assets in his own business. In this case, the owner must have owned the asset for at least 2 years in order to claim APR.
  2. The landowner is letting out agricultural land/property to a farmer (the landowner does not have to use the asset for agricultural business himself; the farmer will not be eligible for APR). If this is the case, the owner must have had ownership for at least 7 years in order to claim APR.

In the majority of cases, APR will be available at 100%. There is only one situation where APR will be given at 50%. It is unusual for an individual to be in this position as the asset must satisfy all 3 of the following conditions:

  1. The land must be tenanted;
  2. The lease given to the farmer must have been signed before 1st September 1995; and
  3. The lease must have at least 2 years left at the date of the transfer.

In all other circumstances, if conditions are satisfied, APR should be available at 100%.

APR and BPR on the same transfer

It is possible that both APR and BPR may be available on a single transfer, for example if a farmer owns and runs a farming business, both reliefs might be available on certain property used within the business, such as land/buildings. To prevent double relief, APR is always used in priority to BPR.


There are further conditions relating to the above reliefs that can be intricate and complicated so specific advice should be taken in respect of an individual's particular position. However given the general rules and conditions around the reliefs and with careful planning, using APR and BPR, it is likely that an individual will be able to transfer business and agricultural assets IHT free allowing farms and businesses to pass between generations without forced sale to settle IHT liabilities.

International Issues

As covered at the start of the week, domicile has a large effect on the territorial scope of chargeable assets.  For UK domiciled and deemed domiciled individuals, their worldwide assets are within scope of UK IHT.  For non-UK domiciled taxpayers it is generally only UK situs assets that are chargeable.

As you would expect many overseas jurisdictions have their own Inheritance Tax and Succession rules and this can throw out considerable complexities.  Not only could the asset be chargeable in both jurisdictions (perhaps with double tax relief to minimise tax paid twice), but overseas forced succession rules could mean that the provisions of UK wills and codicils may be overruled. 

Double tax agreements operate between the UK and many jurisdictions in order to establish which jurisdiction has primary taxation rights on the assets of the deceased. Nevertheless, HMRC may seek evidence of tax being paid overseas before they grant relief in the UK.  For jurisdictions with which the UK does not have a double tax treaty, relief is generally obtained under unilateral relief with full credit for the tax paid overseas up to but not exceeding the UK IHT on that same asset.

Any UK domiciled or deemed domiciled individual should consider the IHT planning for their international assets extremely carefully as structuring them correctly at acquisition can alleviate significant pitfalls arising later, particularly when the assets become pregnant with capital gains making them difficult to restructure effectively.

Should you have any queries or questions in respect of the above, please reach out to your usual Arnold Hill & Co contact or call our mainline number 0207 306 9100.

The information in this article is believed to be factually correct at the time of writing and publication, but is not intended to constitute advice.  No liability is accepted for any loss howsoever arising as a result of the contents of this article. Specific advice should be sought before entering into, or refraining from entering into any transaction.