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Inheitance tax on farmland?

Tax | Inheritance Tax Helpful? 2

Asked by Canol, submitted 08 August 2011.

Open Quote Do I have to pay inheritance tax on land used for farming? I rent land to a farmer.End Quote

Answered by Justin on 10 August 2011

Land used for farming should be eligible for agricultural relief, which can mean either full or 50% relief from inheritance tax.

Rather than regurgitate all the rules and conditions here, take a look at HMRC's very helpful guide. Meanwhile, here's a brief summary:

To be eligible for agricultural relief you must have owned the land throughout the 7 years before your death and it must have been used for agricultural purposes during that time. If you farm the land yourself (rather than rent it to a farmer) the period is reduced to two years.

Provided the land is eligible and the tenancy began on or after 1 September 1995 it should be fully exempt from inheritance tax, i.e. it won't form part of your estate. If the tenancy began before then relief will likely be restricted to 50%, although transitional relief at 100% might be given on tenancies starting before 10 March 1981.

Note, the relief is based on the 'agricultural' value of the land. So if the land is theoretically worth more due to development potential or property not used for farming, the increased value will not be eligible for relief.

Hope this helps and good luck avoiding the taxman's claws.


Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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