A clear statement has been issued by UK tax authorities (HMRC) that land let on a tenancy in NI will qualify for full agricultural property relief (APR) from inheritance tax (IHT).

This should remove any doubts that landowners may have had about the relief available from inheritance tax if they let their land on a longer-term tenancy agreement rather than short-term conacre.

The confirmation comes after the Central Association of Agricultural Valuers (CAAV) requested clarity on the issue, amid growing interest in tenancy agreements in Northern Ireland.

HMRC’s Inheritance Tax (IHT) Policy Division said: “Agricultural Property Relief afforded to qualifying agricultural property let on a tenancy granted on or after 1 September 1995 by section 116(2)(c) of the IHT Act (1984) is not dependent on whether the tenancy is under a code of law, but just has to be tenancy of that property. Such tenancies would include those in Northern Ireland.”

Jeremy Moody, secretary and adviser to the CAAV consulted HMRC and he is delighted at the response.

What matters is that the land qualifies as agricultural property and is let on any form of tenancy that started after 1995, said Moody.

“Moreover, this covers any tenancy of qualifying farmland, however long it is for, while conacre must be used for less than a year to give the same relief,” he added.

According to Moody, the other point – implicit in the assurance – is that as APR now applies throughout the European Economic Area this assurance applies to land in the Republic owned by UK taxpayers and let to tenants.

Dwelling houses

Neither conacre nor tenancy will give inheritance tax agricultural property relief on the landowner’s house but a new relief on dwelling houses to be inherited within the family is expected to provide substantial relief from inheritance tax on the dwelling.

From April 2017, this new inheritance tax relief on dwellings will be available where the deceased lived in the house and it is inherited by a lineal descendant. That relief starts in 2017 at £100,000 per person and rises to £175,000 in 2020 when a married couple will be able to double that relief up to £350,000.

The relief is lost where the net value of the estate is above £2m but that will be above the valuation of many farms in NI and can be tackled by giving land down the family before death. Specific advice should be taken on each case.

When this new relief is available, this could leave many landowners free to let the land for a rental income.

Capital gains tax

While the current Finance Bill reduces the main rate of capital gains tax (CGT) to 20%, it leaves capital gain on housing taxed at 28% in the event of sale of the house. The owner’s principal private residence relief covers the gain on the dwelling in which a person lived but this 28% charge applies on all other houses and cottages where a farm is sold.

The gain on the other dwellings will be assessed (this can be complex) and taxed at the higher rate.

Mainly aimed at buy-to-let and second homes, it appears to catch people who inherit extra houses (even a part share) or join children in buying a home.

It raises issues on development. Selling land with planning permission is not caught at the 28% rate but once work has started, as with say a barn conversion project, then the higher rate can be due on a disposal or gift. That might occur when changing ownership within a family or a reorganisation to help take the development forward.