Sussex Exclusive Magazine Edition II 2022

on the passing of an individual or when put into
trust, more significantly this tax relief contributes
to the continuity of the business as it passes from
one generation to the next and the livelihoods of
those involved.
Does APR include farm
buildings?
Whilst farm buildings used as part of the winery
will qualify for APR, derelict farm buildings
do not qualify for APR as they are not being
occupied for the purposes of agriculture.
This may be particularly relevant if a farm is
transitioning from traditional horticultural use to
being a vineyard or winery and not all the farm
buildings are used in the wine making business.
And what about the owner’s
house?
The test for whether the owner’s house is of “a
character appropriate to the property” requires
consideration of four factors:
• Is the house appropriate by reference to its
size, content and layout with the winery
buildings and the size of the vineyard?
• Is the house proportionate in size and nature
to the requirements of the winery?
• Would the educated rural layman regard
the house as the core of the winery or just a
large country house with land purchased for
lifestyle reasons?
• How long has the house been associated with
the land and is there a history of horticulture?
The winery owner’s house should therefore
qualify for APR if of a character appropriate to
the vineyard or winery, provided it is where the
wine making business is controlled from.
Also when a wine making business transitions
from one generation to the next, there is a risk
the house may in fact have become a retirement
home and is no longer the centre of operations
for the winery. The next generation may need
to occupy the house if they are continuing the
family winery business with the older generation
moving to a different and perhaps smaller
property on the vineyard or elsewhere.
Are farm cottages within APR?
Cottages on farms can also qualify for APR,
usually at 100%, provided they meet the
“character appropriate” test and an occupation
test. Employee occupied houses qualify as do
certain others.
If a temporary vacancy is to occur it is to
your discretion whether the cottage would
be considered as held for the purposes of
agriculture. Individuals should take care that
the cottages let to an unconnected person
will be unlikely to qualify for the relief, on
the basis it would ‘not be occupied for the
purposes of agriculture’.
How are borrowings treated?
The old rules provided that borrowings, even
if used to acquire property qualifying for APR,
would be deductible against the asset on which it
was secured.
It is now the case that where new borrowings are
taken out, the borrowing is set against the assets
qualifying for APR to the extent the borrowings
were used to acquire the APR qualifying property.
What are the APR dangers?
There are some. The most obvious in a wine
making business is APR will not be available
if there is a binding contract for sale of the
property in the partnership or shareholders
agreement, but this can usually be avoided by
having in place buy and sell option agreements.
Landowners also need to be cautious of
alternative revenue streams on the land.
Diversification of land operations may lead to
income from alternative sources, but could hurt
the availability of APR on the asset. Examples of
this may include renewable energy projects and
holiday businesses.
What if the farmland and
buildings have development
value?
APR is only given for the agricultural value of
the property as opposed to the open market
value of the property. Sometimes these amounts
are the same but on occasion HMRC insist on
agricultural value being 60-70% of open market
value even though there is no such standard
discount. Each case will need to be considered
on its merits.
If however the land has hope or development
value, particularly if the vineyard is next to a
built up area or could be the next strategic site in
a local authority approved plan, the excess value
over the agricultural value will not attract APR.
The position may however be saved by Business
Property Relief, another form of tax relief for
Inheritance Tax relief purposes, if the land is
used in the owner’s own trading business.
If you would like to discuss Agricultural
Property Relief for your vineyard or winery,
please get in touch.
Stuart Ritchie is a
chartered accountant
and chartered tax
adviser with over 30
years experience. He
is a tax partner with
Ritchie Philips LLP
based in Horsham
and can be contacted
on 020 3195 1300
or at stuart.ritchie@
ritchiephillips.co.uk. He
has direct experience of
securing APR relief for
IHT for agricultural
businesses as they pass
between generations.
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