HMRC 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 upholding the First Tier Tribunal’s decision 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.
Graham Buckell, Tax Partner at Bates Weston LLP, says that this is an important decision in favour of the tax-payer although it remains to be seen whether HMRC will seek to take the case to the Court of Appeal.
The main conditions for APR are that it must be a farmhouse occupied for agricultural purposes and be of character appropriate to the farm. In determining character it is necessary to ascertain what land is to be taken into account. Thus, where the size of the farm is small with a substantial farmhouse, HMRC will often seek to deny relief for the farmhouse.
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 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. HMRC argued that only the 25 acres owned by the deceased should be taken into account.
The Upper Tier Tribunal, said that HMRC must take into account the entire area farmed by the son and that ‘common occupation’ applied rather than common ownership.
Graham adds “This decision offers some comfort for farming families, and should enable APR claims where ownership is fragmented. It might also serve as a catalyst to encourage owners of farmhouses to structure their affairs in a more tax-efficient manner.”
If you would like to speak to Graham about this issue, please call him on 01332 365855 or email firstname.lastname@example.org