As anybody who knows me will tell you I am a keen horse lover, competing at dressage and owning two horses.
I have been asked on several occasions about inheritance tax and the reliefs available for those who have horses on their own land, whether as part of a livery business, part of a working farm, to breed or simply for their own enjoyment.
Many people have fallen into the trap of assuming that horse activities qualify in some way or another as ‘agricultural’ therefore their land will attract agricultural relief. The reality of the situation is that only a small niche of equestrian landowners would be able to claim this sought after relief. Below I have set out a couple of the basics points in relation to agricultural relief and its application to the equine world.
To start at the logical beginning a brief word on inheritance tax and agricultural relief…
Inheritance tax is paid on a person’s estate (their property money and possessions) if it is worth more than £325,000 when they die. This is referred to as the inheritance tax nil rate band and different rates have applied over the years.
The rate of inheritance tax is 40% on anything above the threshold and therefore the tax is a substantial one.
You can leave some agricultural property free from inheritance tax if it is pasture used to grow crops or rear animals and the land must have been owned and occupied for agricultural purposes for 2 years if occupied by the owner or 7 years if occupied by someone other than the owner.
Horses fall into a bizarre bracket, sometimes being used for breeding or agriculture and sometimes being used for leisure purposes.
As usual, equestrian land owners do not get off lightly which is in line with the basic assumption that anything connected with the equine world is expensive! The relief is very difficult to obtain on equestrian property and landowners must satisfy several criteria before relief will be given.
Some scenarios in turn:
1. The livery yard owner
Unfortunately, livery yards are not regarded as ‘farming’ therefore will not qualify for agricultural relief. As nothing is reared or produced on the land for an agricultural purpose this activity does not fall within the remit of agricultural relief. Alternatively, livery yard owners may seek to claim business property relief but this is outside of the remit of this blog being subject to its own criteria and requirements.
Grazing of horses of horses and ponies in general does not qualify as occupying land for agricultural purposes if the horses are used for leisure riding activities or no other agricultural purpose is connected with the grazing.
It has been said that the decision leading to this approach is flawed as if the sole purpose of the paddock was to produce a crop of grass which in itself is agricultural, what the crop of grass is being used for is immaterial.
Arguably, if it could be shown that the horses were connected with agriculture either by themselves being used for agricultural purposes such as shire horses ploughing the land, they could fall into the category of livestock and therefore qualify for relief.
Likewise, if the horses were produced for meat then they may well be regarded as agricultural in the same way that cows and sheep would be thus attracting relief.
3. Stud Farming
In contrast to nearly every other equestrian area, stud farming does qualify for agricultural relief. As the purpose of the land, buildings and possibly the farmhouse is to produce and rear the horses this does fall into the remit of agricultural relief in the same way that the breeding of other livestock is traditionally considered to be a farming activity. Care should be taken where stud farming is a ‘hobby’ and not a viable business pursuit as this could jeopardise its status for agricultural relief.
The scenarios above are by no means conclusive, and there are an entire array of different arrangements that may be in place affecting a landowners position. Nonetheless, what is apparent is that landowners should be cautious in any assumptions about agricultural relief where horses are concerned. Every case needs to be considered individually and on its own merits to establish whether an agricultural purpose is present.