Agricultural Property Relief (“APR”) for inheritance tax purposes can be available on the value of a farmhouse. This is a very useful relief, as it can allow the farmhouse to pass with the farm to the next generation, tax free. Funding tax could mean selling land or burdening the farm with debt.
Requirements of APR
To qualify for APR, the farmhouse must be occupied by the farmer and be the centre of operations – the building from which the farm is managed. This requirement can mean APR is lost if the farmer takes a step back from farming by renting out the land, as he is no longer the farmer running the farm from the house. The farmer must remain as such, and continue to run operations from the house.
Charnley and Another v HMRC
In the recent case of Charnley, HMRC denied APR on the farmhouse as its owner, Mr Gill, had let the land out, to Mr Blacklidge. Mr Blacklidge had occupied the land in terms of grazing licences for in excess of 15 years. However, Mr Gill looked after Mr Blacklidge’s cattle, visiting them daily as a minimum, and would report any issues. Mr Gill would make silage and would feed it to the cattle. Mr Gill would move the cattle from field to field depending on the quality of the grass and ground. Additionally, Mr Gill would maintain and improve the fences and hedges separating the fields. He would also undertake ditching and drainage. Mr Gill would ensure that the farmland was kept in good order.
The tribunal was satisfied that Mr Gill remained the farmer, even though he had ceased rearing his own stock. The tribunal determined that the activities undertaken by Mr Gill were those of a farmer on an active farm, rather than merely the provision of grazing land. The tribunal found that Mr Gill’s activities constituted more than just maintenance of the land and was satisfied that Mr Gill ran and managed a farming business from the house.
The tribunal concluded that the house was indeed a farmhouse and therefore constituted “agricultural property”. Mr Gill’s executors had been able to prove to the tribunal that he had not simply retired to the farmhouse to let someone else do the farming, but had continued to operate the farm, from the house. APR therefore applied to the farmhouse.
Implications of the Case
It can be important to capture and retain APR on the farmhouse, so that it can pass on to the next generation with the farm, without having to fund payment of inheritance tax. What the Charnley case brings out is that the evidence of what goes on “on the ground” is important. Records of farming activities should be kept. The case also highlights the fact that APR can be lost when operation of the farm changes. Advice should be taken if changes are being considered.