6 June 2013
Press ReleasesHMRC has lost a long-running court case where it sought to charge inheritance tax on farmhouses where the farmland and farmhouse are not in common ownership.
The Upper Tax Tribunal delivered its long-awaited decision on 21 May deciding that agricultural property relief (APR) from inheritance tax on farmhouses is allowable where the farmhouse and farmland is not in common ownership but is in common occupation.
Thames Valley and South Coast accountants James Cowper Kreston says this is an important decision in favour of the tax-payer and will be an enormous relief for farming families up and down the country.
Stephen Barratt, a director in James Cowper Kreston’s Rural and Bloodstock team said: “The main conditions for APR are that it must be a farmhouse occupied for agricultural purposes and be of character appropriate to the property. In determining character it is necessary to ascertain what property is to be taken into account.
“This is where difficulties arise. In many farming families, ownership and occupation of the farmland and farmhouse are inconsistent, with assets spread across different family members and generations. As a result, when assessing what IHT is due on a specific individual’s estate, matters can become complicated.”
The facts of this case are that whilst Mr Hanson owned the farmhouse for IHT purposes, it was his son who was living in the property and farming the 215 acres of land. Of the 215 acres, 128 were owned by the son with just 25 acres owned directly by the deceased, with the remainder either rented or owned by other parties.
Stephen adds: “In this case, HMRC accepted that the farmhouse was occupied for agricultural purposes, but did not accept that it was of a character appropriate to the amount of land owned by the deceased and farmed by his son as IHT is charged solely on the deceased's estate.
“The Upper Tier Tribunal, rightly, said that HMRC must take into account the entire area farmed by the son and that ‘common occupation’ applied.
“This is a welcome decision that will provide comfort for farming families, and enable APR claims where ownership is fragmented. It might also offer opportunities for owners of farmhouses to structure their affairs in a more tax-efficient manner.”
Stephen Barratt, Director, James Cowper Kreston LLP, Tel +44 (0)1635 35255 or email
