Farmland and farmhouses can be worth a lot of money. Subsequently, on the death of the owner, the amount of inheritance tax liability can be a cause of concern for the family.
Farmhouses, farmland, farm buildings and cottages can all qualify for Agricultural Property Relief, (APR) giving a 50%, or even a 100%, reduction in inheritance tax depending on the circumstances, based on the agricultural value of the land or buildings. However, entitlement to APR is less than straightforward, as recently demonstrated by the Tribunal decision in Charnley v HMRC, an inheritance tax case with an unexpected result.
Charnley v HMRC – the case explained
Mr Gill died in 2013 owning various properties including Woodlands Farm, which comprised 22 acres, a farmhouse and various outbuildings. Significantly, Mr Gill lived in the farmhouse up until the time of his death.
When Mr Gill’s executors tried to claim relief over the farm, HMRC refused their application for APR in respect of the house, on the basis that the home of the deceased was not a ‘farmhouse’. HMRC argued that the farmhouse not only lacked sufficient connection to agricultural activity, it was not ‘occupied for the purposes of agriculture’ in the two years prior to Mr Gill’s death. HMRC took this view since, in the last years while Mr Gill lived on the farm, he had latterly allowed others to use his land through grazing licences, rather than farming it himself.
The Tribunal, in allowing the executors’ appeal, was persuaded by evidence that Mr Gill remained very active in managing the livestock that were grazing on his land, he conducted routine maintenance of the land using his equipment, and he still grew vegetables, using surplus to ‘barter’ with at local shops.
In the Tribunal’s view, Mr Gill’s activity had to be considered historically. Overall it was evident that he had always been a farmer: a fact which remained unaltered - his activity was merely reduced as a result of his advancing years and declining health. As was evident, the nature of his activities went far beyond merely maintaining the farm for letting. Therefore, he was arguably occupying the house for the purposes of agriculture, and the executors’ claim for relief was eventually allowed.
Initially, it may have looked like the application of APR would be prevented because the farmland was occupied by third parties under grazing licences. However, on closer examination, due to Mr Gill’s ongoing activities, the Tribunal was prepared to accept that his estate was eligible. The case illustrates the importance of considering the facts, rather than simply the strict legal position, in APR cases.
With additional reporting by Justine McCluskey