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Reducing Pennsylvania Inheritance Tax

In Pennsylvania, death triggers a state inheritance tax on the distribution of the deceased person’s assets (called the “estate”) to the beneficiaries of the estate. Conservation restrictions on land included in the estate can reduce the inheritance tax owed.

Pennsylvania Inheritance Tax Rates

The rates used to calculate Pennsylvania inheritance tax vary depending upon the relationship of the beneficiary to the decedent. The rate for a surviving spouse is 0%; lineal relationships (up to parents or down to children) -- 4.5%; siblings -- 12%; others -- 15%. These rates are applied to the value of the property of the estate passing to each class of beneficiaries.

Reduction in Value of Land from Conservation Easements in General

When land subject to a conservation easement is valued for Pennsylvania inheritance tax purposes, the restrictions on subdivision, construction of improvements, and activities and uses imposed by the conservation easement are taken into consideration. The reduction in appraised value resulting from conservation restrictions can result in significant savings in the tax that family members or other beneficiaries would otherwise pay upon inheriting land located in Pennsylvania.

Land under Agricultural Conservation Easement  

Reduction in Value

Act 67 of 2006 (see §9) amends Article XXI of the Pennsylvania Tax Reform Code of 1971 (Inheritance and Estate Tax Act)[1] to provide a 50% reduction in valuation for inheritance tax purposes of land subject to an agricultural conservation easement as defined in the Agricultural Area Security Law. This reduction applies to the value otherwise determined under the Inheritance and Estate Tax Act, which may be the “use value” described in the “Clean and Green” section below.

Exempt Transfers

Act 85 of 2012 amends the Inheritance and Estate Tax Act to expand §2111 (the list of transfers not subject to the tax), exempting transfers to lineal descendants (normally taxed at 4.5%) and siblings (12%) of [land subject to] an agricultural conservation easement. The bracketed phrase does not appear in the 2012 amendment but presumably the exemption (identified as “s.1”) was targeted at the transfer of land subject to the easement, not the transfer of the easement itself. Conservation easements are not assets owned by individuals and, thus, not the subject of inheritance.

Agricultural Conservation Easements

Agricultural conservation easements purchased under the program instituted under the Agricultural Area Security Law are, of course, eligible for the 50% reduction provided by Act 67. Other conservation easements may also qualify if they meet the requirements of the definition provided in §903 of the law:

“AGRICULTURAL CONSERVATION EASEMENT.” An interest in land, less than fee simple, which interest represents the right to prevent the development or improvement of a parcel for any purpose other than agricultural production. The easement may be granted by the owner of the fee simple to any third party or to the Commonwealth, to a county governing body or to a unit of local government. It shall be granted in perpetuity as the equivalent of covenants running with the land. The exercise or failure to exercise any right granted by the easement shall not be deemed to be management or control of activities at the site for purposes of enforcement of the act of October 18, 1988 (P.L. 756, No. 108), known as the “Hazardous Sites Cleanup Act.

The Model Grant of Conservation Easement published by the Pennsylvania Land Trust Association gives the easement holder the right to prevent the development or improvement of areas identified as “Highest Protection Area” for any purpose, and the right to prevent the development or improvement of areas identified as “Standard Protection Area” for any purpose other than sustainable agricultural purposes, sustainable forestry purposes and recreational uses. The possibility that the owner could grow and harvest hardwoods and other forest and nursery products within the Standard Protection Area should not disqualify the Model Grant of Conservation Easement as an agricultural conservation easement as defined by the law. The Agricultural Area Security Law defines “agricultural commodities” to include timber, wood and other wood products derived from trees. If the possibility of recreational use within the Standard Protection Area would disqualify an otherwise conforming conservation easement for purposes of Act 67, then that possibility can be removed from the conservation easement.

Designation of a “Minimal Protection Area” to accommodate residential use under the model is also consistent with its qualification as an agricultural conservation easement for purposes of Act 67. Agricultural conservation easements purchased under the Pennsylvania Department of Agriculture’s Agricultural Conservation Easement Purchase Program may include at least one residential area. Presumably, inclusion of a Minimal Protection Area for the same purposes should not disqualify, for purposes of Act 67, a conservation easement based upon the Model Grant of Conservation Easement.

Exemption for Intra-family Transfers of Real Estate Devoted to the Business of Agriculture

The 2012 amendment of the Inheritance and Estate Tax Act exempts a transfer of real estate devoted to the business of agriculture between members of the same family under certain conditions.

Scope of Exemption

The exemption for “members of the same family” includes ancestors and lineal descendants (normally taxed at 4.5%), siblings (12%) and a variety of aunts, uncles, cousins, nephews, nieces, and spouses of any of them, all of whom would otherwise pay at the 15% rate.

Continuation of Business of Agriculture

The exemption applies immediately but may be lost if, within seven years from the transferor’s death, the land is no longer devoted to the business agriculture.

The “business of agriculture” is defined only by what is specifically included (leasing of property directly and principally used for agricultural purposes) and what is specifically excluded (recreational activities, raising animals for recreational or sporting activities, fur farming, stockyard and slaughterhouse operations, and manufacturing or processing operations of any kind). At least $2,000 a year must be derived from the exempted land to continue to qualify for the exemption.

The exemption requires continuation of the business of agriculture, not the continuation of intra-family ownership, during the seven-year period. Purchasers of land transferred out of an estate within the past seven years will want assurance that the inheritance tax exemption was not taken or, if it was, that the owners have complied with applicable conditions for continuation of the exemption; otherwise, the land may be subject to a lien for, and the new owner liable for payment of, the unpaid inheritance tax, with interest.

Agricultural Reserve, Agricultural Use Property and Forest Reserve

Exempt Transfers

The 2012 amendment of the Inheritance and Estate Tax Act exempts transfers to lineal descendants (normally taxed at 4.5%) and siblings (12%) of agricultural reserve, agriculture use property or forest reserve as those terms are defined in §2122(a) of the Inheritance and Estate Tax Act. The defined terms correlate to use categories qualifying for the Clean and Green program instituted under Act 319 of 1974 but the inheritance tax exemption is available for qualifying land whether or not it is enrolled in the program.

Reduction in Value of Land Enrolled in Clean and Green

If the land has been enrolled in the Clean and Green program instituted under Act 319 of 1974, §2122(b) of the Inheritance and Estate Tax Act affords an opportunity to reduce taxes otherwise due upon inheritance of land. The land is valued at its use value, set annually by the Pennsylvania Department of Agriculture, rather than its appraised value for inheritance tax purposes. The “use value” is typically much lower than fair market value.

End Note

[1] Article XXI of the Tax Reform Code of 1971, Act of March 4, 1971, P.L.6, No.2, added by Act of August 4, 1991, P.L.97, No. 22, as amended.


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Pregmon authored this guide and has helped scores of clients find creative solutions to meet their needs.

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Patricia L. Pregmon, attorney at law, is the primary author, and Andy Loza, the contributing author and editor.


Nothing contained in this or any other document available at is intended to be relied upon as legal advice or to create an attorney-client relationship. The material presented is generally provided in the context of Pennsylvania law and, depending on the subject, may have more or less applicability elsewhere. There is no guarantee that it is up to date or error free.