The Tribunal recently considered an interesting feature of agricultural relief for inheritance tax purposes and concluded that the prevailing HMRC practice was wrong. Hanson v HMRC TC1791.
Agricultural relief is given in respect of agricultural property which is defined by section 115 IHTA 1984 as being agricultural land and any building which is occupied with the agricultural land. This includes farmhouses and other buildings together with the land occupied with them, if they are of a character appropriate to the property.
The issue of principle was whether the relief was available on a farmhouse which was owned and occupied by the taxpayer but where the agricultural land (the farm which was operated from the farmhouse) was in different ownership, being owned by another member of his family.
HMRC said that no relief was available because to qualify for agricultural relief the farmhouse and the land had not only to be occupied by the taxpayer for agricultural purposes, they both had to be owned by the taxpayer.
Why should they say this? There is nothing in section 115 or section 116 (which provides the relief) containing any requirement for the agricultural land to be owned by the taxpayer. HMRC argued that this condition should be inferred to make it consistent with other parts of the IHTA 1984. (This was not completely off the wall; they had some support for this view from an earlier decision of the Special Commissioners – Rosser v IRC in 2003).
However the Tribunal disagreed with the decision in Rosser (which they were free to do because decisions of the Special Commissioners were not binding) and decided that such an ownership condition should not be inferred; it was not a necessary condition for the relief to be available nor was there anything In the consistency point. The nexus between the land and the farmhouse was simply one of occupation not of ownership.
Interestingly there is a reference to ownership in section 117 for agricultural relief but that applies specifically to the alternative test for the relief – where the land is owned by the taxpayer for seven years and used by him (or somebody else) for the purposes of agriculture throughout that period.
It remains to be seen what HMRC do about this decision – whether they appeal, or accept the position and change their practice on the subject. Or they may do nothing. As it stands, things are rather unsatisfactory because the decision in Hanson does not overrule Rosser. Anybody else making a similar claim may be met with the same response from HMRC. Each side could claim they have a Tribunal (or Special Commissioners’) decision supporting their view.