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For information of users:
This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.
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AGRICULTURAL PROPERTY RELIEF
- Inheritance Tax
There are been numerous attacks by HMRC in recent years in attempt to deny agricultural property relief (APR) on farmhouses and farm buildings. The recent case of Atkinson v HMRC [2010] has resulted in a taxpayer victory, concerning whether a bungalow (treated as a farm cottage) had been occupied for the purposes of agriculture during the last four years of Mr Atkinson’s life when he was forced to live in a care home due to ill health. He remained in the farming partnership until his death and continued to keep his belongings at the property and visited occasionally.
The term ‘occupation’ is not defined for tax purposes. However, following from the case of Harold v IRC [1996], some physical presence is required before there can be occupation, but being physically absent from the property should not mean occupation ceases unless something is specifically done to terminate it. In the Atkinson case no-one else moved in and the property continued to be made available by the partnership occupying the farm under the terms of a tenancy granted by Mr Atkinson.
HMRC are increasingly scrutinising APR claims in relation to farmhouses, cottages and farm buildings; in particular they are looking at the following:
- Whether the chief dwelling is actually a farmhouse, i.e. the place from which the farm is effectively managed. This might be an issue where the property continues to be occupied by the older generation who are no longer ‘hands-on’ farmers
- Whether a farmhouse is too grand in relation to the farm
- Whether the farmhouse has any non-agricultural value
- Identifying redundant farm buildings
- Indentifying farm buildings not occupied for agricultural purposes, e.g. storing equipment used for contracting
Where APR is not available, Business property relief (BPR) may be available instead. This may particularly apply to any development or hope value or where the farm has diversified into non-agricultural activities such as letting. BPR is available if the composite business is mainly trading (as opposed to mainly holding investments) overall. The rate of BPR is either 50% or 100% depending on who owns the property. Accordingly, it is vital the ownership structure and mix of business activities are reviewed in order to access this additional relief.
If you would like to discuss the above points in more detail, or are interested in an inheritance tax review more generally, please contact our Tax Director, Daren Peacock on 01270 623731 or daren.peacock@affordbond.com
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