Explanatory note (accessible version)
Updated 6 March 2024
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This publication is available at https://www.gov.uk/government/publications/changes-to-the-geographical-scope-of-agricultural-property-relief-and-woodlands-relief-for-inheritance-tax/explanatory-note-accessible-version
Clause 1: Inheritance tax: treatment of non-UK agricultural property and woodlands
Summary
1. This clause restricts the scope of agricultural property relief and woodlands relief to property located in the UK only.
Details of the clause
2. Subsection (2) removes references to the Channel Islands and the Isle of Man with regards to the treatment of agricultural tenancies for inheritance tax (IHT) purposes from section 16(1) Inheritance Tax Act (IHTA) 1984.
3. Subsections (3) and (4) make amendments to section 115 IHTA 1984 and section 116 IHTA 1984 respectively. The amendments provide that agricultural relief is only available to UK property.
4. Subsection (5) amends section 125 IHTA 1984. The amendments provide that woodland relief is only available to UK property.
5. Subsection (6) reverses the changes made by section 122 Finance Act 2009.
6. Subsection 7(a) provides that the legislation will have effect on transfers of value made on or after 6 April 2024.
7. Subsection (7)(b) provides that the legislation will have effect on transfers of value made before 6 April 2024, and any charge to tax, or extra tax arising after that date.
8. Subsection (7)(c) provides that the legislation will have effect on or after 6 April 2024 for occasions of charge that are not transfers of value.
Background note
9. Changes in Finance Act 2009 expanded the scope of agricultural property relief and woodlands relief to property located in the European Economic Area (EEA) to ensure IHT legislation was compatible with EU law. As announced at Spring Budget 2023, now that the UK has left the EU, the government is reversing those changes and restricting the scope of agricultural property relief and woodlands relief from inheritance tax to property in the UK from 6 April 2024.
10. The clause makes a further change to remove the anachronistic expansion of agricultural property relief in 1975 to agricultural property located in the Channel Islands and Isle of Man. This was to reflect changes to the deemed domicile rules in 1974 which meant that those moving from the UK to the Channel Islands and Isle of Man were deemed to be domiciled in the UK and subsequently their worldwide estate would fall within the scope of IHT in the event of their death.
11. The 1974 deemed domicile provisions were later removed in 1984 which meant that the estates of those who had moved from the UK to the Channel Islands and Isle of Man were no longer subject to this tax treatment. The expansion of agricultural property relief to property in these locations is therefore no longer needed. This clause removes this treatment and ensures that agricultural property relief is aligned in geographical scope with woodlands relief.
12. If you have any questions about this change, or comments on the legislation, please contact the Inheritance Tax Policy Team by email at: assetsresidencepolicy@hmrc.gov.uk.