A new report is warning landowners and tenant farmers that the abolition of Agricultural Property Relief (APR) could have huge repercussions on the industry.

There have been rumours that the new Labour government would end APR, which provides significant tax relief for family farms, since they gained power.

If abolished, inheritance tax liabilities could increase substantially, with a farm valued at £2m potentially facing an estimated tax bill of £600,000, according to a report from property consultancy firm Berrys.

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This change would predominantly impact landowners not actively trading and would affect landlords of Farm Business Tenancies (FBT’S) and Agricultural Holding Act (AHA) Tenancies.

Although chancellor Rachel Reeves hasn’t specified any changes to APR, in Labour’s first budget, which is scheduled for October 30, she has indicated that taxes are likely to rise but that national insurance, VAT or income tax will remain untouched. That leaves inheritance tax, capital gains tax and pensions up for grabs.

Charlotte Shepherd, partner at Berrys, warned: “APR has been part of the discussion for a long time now, and with a new government in place, there is an even stronger chance changes to APR will come,” she says.

She advised landowners to carefully consider alternative options to their land management strategies, perhaps moving from FBT agreements to share or contract farming agreements.

This shift can help reclassify the farm as a trading entity, making it eligible for the other important relief – Business Property Relief (BPR), upon death. The landowner would need to have been actively trading in business for two years to claim this relief on business assets.

Although moving away from an FBT to a share or contract farming agreement will mean changes for both the landowner and tenant, there are a number of impacts that both parties should consider, adds Mrs Shepherd.

She urged landowners at risk of large tax inheritance tax bills to explore share or contract farming agreements as a viable alternative at the appropriate time.

“Make sure you pay attention to the budget announcement on October 30. Transitioning to share or contract farming agreements could offer a viable solution, provided it is approached with careful planning and expert guidance. Seek advice before entering into any agreements and get the right one in place. Everybody’s position will be different, and it’s a case of one size does not fit all."

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