As many of you know, over the last few years it has become increasingly difficult to succeed with a claim for Agricultural Property Relief (APR) from Inheritance Tax (IHT) in respect of a farmhouse. HM Revenue & Customs (HMRC) now take an aggressive approach to such claims, and will seek to deny or restrict relief wherever possible. Of particular concern are properties occupied by elderly farmers. If the farmer, through old age or infirmity, has had to reduce his or her agricultural activities and/or involve external managers or contractors, HMRC will try to argue that the property is no longer a farmhouse for the purposes of APR.
Even if it is accepted that a property is a farmhouse, APR will only be available if the property is of a “character appropriate” to the farmland which it is occupied with. In determining whether a particular property is of such a character, HMRC will have regard to a number of factors, including the level of farming activity, and the financial position of the farming business.
These were the issues for consideration in the case of Golding v HMRC which recently came before the First Tier Tax Tribunal. At the time of his death, aged 80, Mr Golding’s farming activities were limited to growing cereals and vegetables, mainly for his own consumption, and selling eggs to local customers. His taxable farming profits in the years leading up to his death amounted on average to only around £1,500 per annum. HMRC had argued that Mr Golding’s 3 bedroom house was not of a “character appropriate” to his 16.3 acre holding; that it was not necessary to retain a house to farm that area; and that the farming profits were not sufficient to support a property of that size.
Fortunately, the Tribunal disagreed, holding that the property was a farmhouse which was of a “character appropriate”. Having regard to the history of the farm and the farming activities, they said that the fact that the farm produced only a small profit was not determinative, and focused instead on whether Mr Golding was farming at the time of his death. They found that he was working the farm “to the best of his ability”, and that given his age, it would have been unreasonable to expect more extensive farming activity. APR was therefore available on the house.
This decision, which has been hailed as “a victory for common sense” will bring some comfort to elderly farmers, their families and their advisers. It seems clear that matters should be looked at in the round, and that provided the farming activities are commensurate with the age and health of the farmer, a reduced scale of activity should not of itself be a bar to APR. However, HMRC have until mid July to appeal the case, so anyone looking to rely on the principles of the case in the meantime should do so with caution.