Jeremy's Blog 20th October 2023: Inheritance Tax - the Recurrent Itch over APR

This article by Jeremy Moody first appeared in the CAAV e-Briefing of 19th October 2023

For at least 30 years, the rural rumour mill over the future of APR periodically goes into overdrive. The chatter then reverberates as others pick it up and repeat the echoes, making the speculation appear real – all told, a masochistic part of rural debate. We seem to be on the edge of one such moment as people try to join up the few dots about future Labour tax policies in this area.

Use of APR was on the long list of “loopholes” (the inevitable, unhelpfully loaded word in such contexts) set out by Gordon Brown when shadow Chancellor in the mid-1990s. That set this chatter running then. Like a virus, it then revives periodically, often ahead of financial statement or budget, and then dies away. APR has endured throughout. Indeed, when the ECJ Jäger decision required the then Labour government to choose between abolishing APR or applying it to all land in the European Economic Area, it chose the latter in 2009. Now outside the EU, the next Finance Act is likely to limit it to land in the UK.

With one form or another, agricultural land has had some protection from Estate Duty (long capping its taxable value), Capital Transfer Tax and Inheritance Tax since 1894, bar a very brief period in the mid-1970s which starkly showed the need for it and Working Farmer Relief swiftly created with its ceilings. That was replaced by APR in 1981, first as a partial relief on agricultural value and then fully from the 1990s. Its scope has broadened over the years (stud farms (1984), short rotation coppice (1995) and Habitats Regulations land (1997)) while case law has tightened the understanding of its rules.

Lay comment, by both supporters and critics, commonly exaggerates the important role of APR, failing to see its often close interaction with BPR. The farming world sees its simple ownership of the relief in the “agricultural” title. Technically, APR is assessed before BPR even though that would generally cover owner-occupied land in business use and fully do so at market value (not agricultural value). For critics, APR plays to an old story of wealth finding a bolthole in the countryside though the main present buyers are farmers and environmental bodies.

Looking past the totemic issues, APR serves two very practical purposes, limiting the tax exposure of working farmhouses and ensuring broadly tax neutral treatment for let land compared to owner-occupied land, necessary for private owners to consider letting as rational. Squeeze APR and land falls out of the let sector to qualify for BPR. We wait for an answer on APR’s possible extension to cover farmland put to environment uses, relevant to let land and then also where the environmental use is not a qualifying business use.

Labour has given few hints on relatively low yielding capital taxes. Despite Angela Rayner’s remarks, the shadow Chancellor has said that the rate of CGT would not increase. Beyond that seems to be just loose discussion of APR and BPR jointly, musing how they might be focused on worthy recipients, rather than abolition. What might be the test for BPR? How might APR exclude those looking to shield wealth, were that happening?

The alternative is tax at 40 per cent on the assets of privately owned farms, whatever the value of the land, with timing dictated by the chance of death. That creates substantial risk at a time when we want farming to focus on improving its business performance – essential for food security in a darkening world with climate change and competing uses for farmland – that needing investment, certainty and confidence.