Clarifying the complexities of APR and IHT for family farms: a prime time fact-check analysis

During last night’s prime time news bulletin about the farmers’ protest in Westminster, there was a “fact check” section in which the presenter gave examples of how the proposed agricultural property relief rules would work in practice.

One example was based on a single farmer dying with an estate worth £2.2m, the entirety of which qualified for agricultural property relief and was left to a child. The tax calculation in that example was in fact wrong.

The presenter said that in addition to the £1m allowance, a single person would have an additional £500,000 allowance, made up of the £325,000 nil rate band – which potentially applies to any asset – and the £175,000 residence nil rate band – which would only be available if the single person in the example had a child to whom they left a residential property (eg the farmhouse).

In fact only £75,000 (not £175,000) of the residence nil rate band would be available in these circumstances.

(This is because the residence nil rate band is subject to a tapering provision which reduces the available residence nil rate band for estates with a net value above £2 million. The residence nil rate band is reduced by £1 for every £2 that the net value of the estate exceeds the £2 million threshold. So if an estate has a net value of £2.2 million, it exceeds the threshold by £200,000. The residence nil rate band would be reduced by £100,000 (£1 for every £2 over £2 million), to £75,000.)

The actual tax calculation is in any event more complicated because the 100% and 50% reliefs apply before the nil rate band and residence nil rate band are deducted. 

This illustrates perfectly (i) the unnecessarily complexity of the residence nil rate band rules (which should simply be abolished and the nil rate band increased accordingly) and (ii) that assertions that single farmers will in practice get a £1.5m allowance and couples a £3m allowance are very unlikely to be correct in practice.