APR on Farmworker Cottages UK: Agricultural Property Relief on Tied Houses, Farm Cottages, and Workers' Dwellings
Farmworker cottages and tied houses qualify for APR under section 115(2) IHTA 1984 — provided the occupant is employed in connection with the agricultural use of the land and the cottage is of a character appropriate to the agricultural holding. 100% APR on modern Farm Business Tenancies; 50% on protected AHA 1986 tenancies.
APR on Farmworker Cottages and Tied Houses
Statutory definition: farmworker cottages qualify as agricultural property
Section 115(2) IHTA 1984 defines 'agricultural property' to include: '(a) agricultural land or pasture; (b) woodland and any building used in connection with the intensive rearing of livestock or fish if the woodland or building is occupied with agricultural land or pasture and the occupation is ancillary to that of the agricultural land or pasture; and (c) such cottages, farm buildings and farmhouses, together with the land occupied with them, as are of a character appropriate to the property.' The key categories for residential buildings are (c): cottages (farm workers' dwellings), farm buildings, and farmhouses — all subject to the same 'of a character appropriate' test. A farmworker cottage is therefore within the definition of agricultural property and potentially eligible for APR at 50% or 100%, subject to: (1) the character appropriate test; (2) the occupation condition (the cottage must be occupied 'in connection with the agricultural use of the land'); (3) the ownership/occupation period (2 years' owner-occupation or 7 years' letting for the transferor or their spouse/civil partner).
The 'of a character appropriate' test for farmworker cottages
The 'of a character appropriate' test (the same statutory test applied to farmhouses) requires that the cottage is appropriate in terms of size, content, and layout to the agricultural holding of which it forms part. For a farmworker cottage this test is generally easier to satisfy than for a farmhouse — a small tied cottage or terraced house on a farm is obviously character-appropriate to the agricultural land. However, a large detached cottage in its own extensive grounds, furnished to a high standard for holiday letting, may not satisfy the test even if nominally available to farm workers. HMRC applies the character appropriate test by looking at the historical use of the cottage (was it always used for agricultural workers?), its physical relationship to the agricultural land, and whether its features are consistent with a working farmworker's dwelling rather than a luxury residential property.
Occupation condition: the farmworker must be employed in connection with the agricultural land
The cottage must be occupied by a person 'employed in connection with the agricultural use of the land' to qualify under s115(2) IHTA 1984. The occupation condition requires a live farmworker in the cottage — someone employed to work on the farm itself. A farmworker who has retired (no longer employed on the farm) may not satisfy the occupation condition for APR on the cottage — HMRC may argue the cottage is no longer occupied in connection with agricultural use. Exception: where a retired farmworker occupies the cottage under a protected tenancy (AHA 1986), the APR position is more nuanced — the cottage may still qualify as agricultural property even with a retired occupier if the tenancy was originally granted in connection with the agricultural employment. Planning point: where a farmworker has retired and occupies a cottage, it may be better to ensure the cottage is let to an active farmworker, or to use BPR to cover the cottage value as part of the farming business.
APR rate: 50% or 100% for farmworker cottages
The rate of APR on a farmworker cottage depends on the nature of the occupation: (1) 100% APR: where the cottage is occupied by the owner, or under a tenancy granted on or after 1 September 1995 (Farm Business Tenancy under the Agricultural Tenancies Act 1995), or where vacant possession could be obtained within 24 months of the date of transfer or death. (2) 50% APR: where the cottage is let under a tenancy granted before 1 September 1995 (Agricultural Holdings Act 1986 tenancy) that the landlord cannot easily terminate — these protective pre-1995 tenancies are harder to vacate and the discount in relief reflects the difficulty of recovering possession. For most modern farmworker cottage arrangements (post-1995 FBT or owner-occupied), 100% APR applies on the agricultural value of the cottage.
Vacant cottages: the 2-year rule and transitional arrangements
Where a farmworker cottage becomes vacant (e.g. the farmworker retires, moves on, or dies), there is a 2-year transitional period during which the cottage can still qualify for 100% APR — provided vacant possession could be obtained and the owner is taking steps to relet to an agricultural worker. HMRC's guidance accepts that a temporarily vacant cottage does not immediately lose APR, but the vacancy must be genuinely temporary. A cottage that has been vacant for years and converted for holiday letting will not retain APR. Once a vacant cottage is relet to a non-agricultural tenant (or converted for non-agricultural use), it ceases to be agricultural property and APR is lost from the date of the change in use.
Cottages let to non-agricultural tenants: APR lost
Where a farm cottage that would otherwise qualify for APR is let to a non-agricultural tenant (e.g. to a retired person, a commuter, or for holiday letting), it ceases to be 'occupied by persons employed in connection with the agricultural use of the land' — and APR will not apply. The cottage will be in the estate at full market value as a let residential property. BPR does not apply to investment letting property. However, if the farmworker cottage has been let non-agriculturally for less than 7 years and was previously owned by the transferor for more than 7 years in total, the full ownership/occupation period test may still be satisfied — but the occupation condition is the key issue. Planning: keep at least one cottage occupied by an active farm employee to preserve APR on that cottage. Consider whether a farm cottage portfolio can be restructured to maintain APR eligibility.
Frequently Asked Questions
Does a farmworker cottage qualify for Agricultural Property Relief?
Yes — under s115(2) IHTA 1984, 'cottages occupied by persons employed in connection with the agricultural use of the land' are defined as agricultural property eligible for APR. The cottage must satisfy the 'of a character appropriate' test (appropriate size and nature for the agricultural holding) and the occupation condition (occupied by someone employed on the farm). If these conditions are met, APR is available at 50% (AHA 1986 tenancy) or 100% (Farm Business Tenancy post-1995, or where vacant possession is obtainable within 24 months).
What happens to APR on a farmworker cottage when the farmworker retires?
When a farmworker retires, they are no longer 'employed in connection with the agricultural use of the land' — the occupation condition for APR may no longer be satisfied. HMRC may argue the cottage is no longer agricultural property once the occupant is retired and no longer working on the farm. A 2-year transitional period applies while the cottage is vacant and steps are taken to relet to an active farmworker. If the retired farmworker holds a protected AHA 1986 tenancy, the APR position is complex and specialist advice should be sought. Planning: where possible, relet the cottage to an active farmworker on a new Farm Business Tenancy to restore 100% APR.
Is there a difference between APR on a farmhouse and APR on a farmworker cottage?
Both a farmhouse and a farmworker cottage must satisfy the same 'of a character appropriate' statutory test (s115(2) IHTA 1984). However, the occupation condition differs: the farmhouse must be occupied 'by a person who farms the agricultural land' (the farmer who owns or tenants the land); a farmworker cottage must be occupied 'by a person employed in connection with the agricultural use of the land' (an employee, not the farmer themselves). A farmhouse typically has the harder APR test because its character appropriateness is judged relative to the farming enterprise overall. Farmworker cottages have a somewhat lower threshold, as they are simply residential accommodation for farm employees.
What rate of APR applies to a farmworker cottage let on an AHA 1986 tenancy?
A farmworker cottage let on an Agricultural Holdings Act 1986 tenancy (a protected pre-September 1995 tenancy) qualifies for APR at 50% — not 100%. The 50% rate applies because the protected tenancy makes it very difficult to recover vacant possession: the landlord cannot readily remove the tenant. The agricultural value of the cottage with vacant possession minus the tenanted value discount = the net agricultural value subject to 50% APR. For modern Farm Business Tenancies (post-September 1995), 100% APR applies.
Can we claim BPR on a farm cottage instead of APR?
Yes — where a farmworker cottage forms part of a farming business as a whole (not let separately from the farming operation), BPR at 100% may be available on the entire business (including the cottage) instead of APR. BPR on a farming business (as a trading business, not merely an investment) can be claimed on all assets used in the business — including farmworker cottages that are provided as working accommodation for farm employees. Where APR is only 50% (AHA 1986 tenancy), BPR at 100% on the business may produce a better result — subject to the wholly or mainly trading test and HMRC's view on the business structure.
Farm Cottages Need a Will That Reflects the APR Position
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