How changes to APR & BPR impact stud farms

Recent reforms to Agricultural Property Relief (APR) and Business Property Relief (BPR) introduce new complexities for stud farms and agricultural estates. Understanding these reforms is essential for navigating succession planning and inheritance tax relief.

Key Changes to APR and BPR

Agricultural Property Relief (APR)

Current Rules: Stud farms qualify for APR if they breed and rear horses alongside land occupation. Relief is 100% if the landowner farms it themselves, leases it under specific conditions, or operates under certain tenancy agreements. To qualify, the property must be owned and used for agricultural purposes for at least two years (by the owner) or seven years (by others). Farmhouses can also qualify if occupied by individuals involved in farming.

New Rules: From 6 April 2026, the first £1 million of combined APR and BPR claims will remain eligible for 100% relief. Beyond this threshold, relief drops to 50%. The allowance is not transferable between spouses. Anti-forestalling measures mean lifetime transfers from 30 October 2024 onward will also be subject to these rules.

APR remains limited to the agricultural value of the property, which is often significantly lower than its market value.

Business Property Relief (BPR)

Current Rules: BPR offers 100% relief on active trading businesses and 50% on certain assets, such as shares in listed companies where control is retained. Eligibility requires a genuine trading business with more than 50% of operations focused on trade rather than passive investment activities.

New Rules: From 6 April 2026, the relief for unlisted shares, previously at 100%, will be reduced to 50%. The combined £1 million threshold for APR and BPR will apply, further limiting the tax benefits for landowners.

Impacts on Stud Farms

Relief Eligibility for Stud Farms

Stud farming qualifies as agriculture if it involves systematic horse breeding on occupied land. HMRC’s criteria emphasise breeding records, advertising, and the trading activity’s commercial nature. However, horse liveries, racing, and eventing do not qualify for APR and must rely on BPR instead. Landowners must demonstrate active trading to secure BPR, as passive activities like leasing grazing land often fail to meet the criteria.

Changes in Tax Liability

The reduction to 50% relief for property exceeding the £1 million threshold increases inheritance tax exposure. For example, agricultural properties valued beyond this threshold will incur a 20% tax rate on the excess, compared to complete exemption under current rules. This creates additional challenges for landowners whose properties are valued well above their agricultural value.

Impact on Dual-Relief Properties

Properties qualifying for both APR and BPR now face proportional application of the £1 million threshold. This complicates estate planning, particularly for diversified estates combining farming and business activities. For instance, a stud farm also offering livery services must carefully assess which reliefs apply and how to maximise them.

Areas of Uncertainty

Equestrian Properties and APR/BPR Eligibility

While stud farms are explicitly included in APR, other equestrian activities remain ambiguous. It is unclear whether training yards or ancillary businesses supporting racing operations qualify for reliefs. The lack of detailed guidance leaves the equestrian industry uncertain about its tax obligations.

Valuation and Agricultural Value

APR is based on agricultural value as set out in the legislation, which is often much lower than market value. The reforms may exacerbate this disparity, as owners of high-value land receive limited relief. Clarification is needed on whether the government will revise agricultural value assessments to reflect modern market conditions.

Spousal Allowance Transfer

Restricting the transfer of unused APR/BPR allowances between spouses or civil partners disproportionately impacts estates where one spouse dies first, potentially reducing the total relief available to the surviving spouse.

Trusts and Succession Planning

Trusts holding agricultural or business property face uncertainties under the new £1 million combined threshold. The government needs to clarify how relief will be allocated among multiple trusts established by the same estate. This lack of clarity complicates estate planning for families relying on trusts to manage succession.

Lifetime Gifts and Anti-Forestalling Rules

The introduction of anti-forestalling measures prevents individuals from avoiding tax by gifting property before the changes take effect. Lifetime transfers made after 30 October 2024 will be subject to the new rules. The retrospective application of these rules introduces complications for current estate planning strategies.

Commerciality and Compliance

Stud farms and equestrian businesses must emphasise commerciality to qualify for relief. HMRC’s focus on active trading highlights the need for robust business plans, profit-driven operations, and systematic record-keeping. Landowners should consider regular audits to ensure compliance with APR and BPR requirements.

Preparing for the Future

The reforms to APR and BPR demand careful planning and professional advice. Stud farms and agricultural estates must adapt their strategies to minimise tax liabilities and ensure smooth succession. Key considerations include:

• Maximising Relief: Review the business’s structure and activities to optimise eligibility for APR and BPR.
• Valuation Strategies: Work with professionals to assess agricultural and market values accurately.
• Succession Planning: Address the non-transferability of allowances and trust implications.
• Compliance Monitoring: Conduct regular audits to align with HMRC’s evolving requirements.

The full implications of these reforms remain uncertain, and further government guidance is needed to clarify key issues. Until then, landowners and businesses must remain proactive, seeking tailored advice to navigate this complex tax landscape.