Grazing Agreements and Agricultural Property Relief: What You Need to Know
If you’re a farmer or landowner looking to diversify your income streams, you may have considered entering into a grazing agreement with another farmer or equestrian business. This type of agreement allows an individual or organization to use your land for grazing livestock or horses and pay you rent in return. However, if you’re hoping to pass on your agricultural property to your heirs and benefit from agricultural property relief (APR) for inheritance tax purposes, it’s important to understand the implications of grazing agreements and how they can impact your eligibility for relief.
What is APR?
APR is a valuable tax relief designed to help farmers and landowners pass on their agricultural property to their heirs without incurring significant inheritance tax liabilities. Under the current rules, agricultural land and buildings can qualify for APR if they meet certain criteria, including:
– The property must be used for agricultural purposes such as farming, forestry, or horticulture.
– The owner must have used the property for agricultural purposes for at least two years prior to their death.
– The owner must have owned and occupied the property for at least two years prior to their death.
The relief can reduce the value of the property for inheritance tax purposes by up to 100%, meaning your heirs may not have to pay any tax on the property when you pass away.
How do grazing agreements affect APR?
If you enter into a grazing agreement, the contract itself is unlikely to affect your eligibility for APR. However, the way in which you manage the agreement can impact your relief.
If the grazing agreement is temporary and doesn’t significantly affect the overall use of the land for agricultural purposes, you should be able to retain your eligibility for APR. For example, if you allow a neighboring farmer to graze their cows on your fields for a few months each year, this shouldn’t have a significant impact on your APR.
However, if the grazing agreement becomes a long-term or permanent use of the land, you may risk losing your eligibility for APR. This is because the land may no longer meet the requirement that it is being used wholly or mainly for agricultural purposes. If you are receiving rental income from the grazing agreement, this may also cause issues with regards to the ‘occupation’ requirement for APR.
To avoid any issues with APR, it’s important to be clear about the terms of the grazing agreement and ensure that it doesn’t significantly alter the use of your agricultural land. You may also want to seek advice from a tax specialist to determine the impact of any such agreements on your eligibility for relief.
In conclusion, grazing agreements can be a valuable source of income for farmers and landowners, but they should be approached with caution if you hope to benefit from APR. By understanding the rules surrounding agricultural property relief and managing your grazing agreements appropriately, you can ensure that your agricultural property remains eligible for relief and can be passed on to your heirs without incurring significant tax liabilities.
