When someone dies, the way in which the Farmhouse is treated for claiming reliefs from Inheritance Tax can be very contentious. The two main reliefs are Agricultural Property Relief (“APR”) and Business Property Relief (“BPR”). If claimed successfully they can reduce the Inheritance Tax liability levied against the Farmhouse to zero.
The key to successfully claiming APR on the Farmhouse is to show that it is ancillary to the faming activity on the land and occupied by the farmer. This must be the case for specified time periods which vary depending on whether you own and occupy the land, or own and let the land.
The concept of a farmer continuing to farm in advanced years has again been an issue for the Courts to consider in the estate of the late Mr Gill who died at the age of 79.
Having always farmed the land owned by his family, Mr Gill made the decision not to own any livestock in his later years due to the complexities around all of the necessary documentation. Instead, he entered into grazing agreements with two other local farmers that used the land for their cattle.
Throughout the years in which the land was grazed, Mr Gill continued to maintain the land, fixing fences and hedges, digging out and clearing ditches, harrowing and rolling the fields. Mr Gill also personally attended to rotating the cattle around the land, checked on cattle daily (often three or four times a day for new calves in the first few weeks) and had a hands-on approach monitoring any health issues with the cattle and making arrangements with the vets.
In evidence Mr Gill was described as “the director of operations”. It was viewed that Mr Gill was very much farming the land using someone else’s stock and was the “boots on the ground”.
H M Revenue and Customs argued that Mr Gill merely let the land and took the income. He was not therefore farming the land but merely using it as an investment (something which is fatal to a claim for BPR).
The court ruled that Mr Gill’s activities went above and beyond maintenance in order to receive an income from grazing. They viewed farming as Mr Gill’s vocation which had not changed despite the adjustment to the operations of the farm business in his later years. The farmhouse and outbuildings were ancillary to the farm business, and therefore both APR and BPR were granted.
Whilst it is natural for anyone in any profession or vocation to ‘wind down’ in later years, this can have serious Inheritance Tax implication for farmers and land owners. Anyone in this position who is considering reducing their farming activity should consult with a specialist adviser in order to ensure that what they continue to do on the farm is clearly documented and evidenced to avoid any issues on death when claiming APR and BPR.
At Hay & Kilner our multidisciplinary rural team can assist in all aspect of estate and succession planning, with specific expertise in making successful claims for Agricultural Property Relief and Business Property Relief.
For more information on any of the above, please contact Alison Hall, or call 0191 232 8345.