Farmhouses have always been a contentious subject when it comes to claiming relief from Inheritance Tax on death. Last year the Atkinson case presented an opportunity to secure relief until a recent decision of the Upper Tribunal in favour of HMRC.
A successful agricultural property relief (APR) claim on the farmhouse can result in a significant tax saving (up to 40% of the value). It is not surprising therefore that HMRC look very carefully at any claim for APR. It is never a foregone conclusion that relief will be secured.
HMRC look at such factors as the size and nature of the house, the historical associations of the property, the “dominance” of the house over the agricultural operations and the purpose of the occupation of the property.
HMRC’s view is that the occupant of a property has to be actively engaged in agricultural activities on a day to day basis for APR to apply to their home. Therefore, if the occupant is elderly and less involved on the farm, the relief is at risk.
In March 2010 however the Atkinson case seemed to present a ray of hope for the elderly farmer.
The Atkinson case involved a small farm in Cumbria. A bungalow was built on the farm in 1966. Mr Atkinson and his wife lived in the bungalow. The farmhouse was occupied by their son William and his wife Margaret.
Mr Atkinson granted a tenancy to the partnership of the farm. His grandson Gary later became a partner. William died in 1995. An agreement was signed by Mr Atkinson, Margaret and Gary confirming they were farming as a partnership and the tenancy was a partnership asset.
Mr Atkinson became ill in 2002. He entered into a care home where he stayed until he died in 2006. Whilst he was in the care home, Margaret and Gary visited the bungalow 2 to 3 times a week. The bungalow remained full of his possessions and no-one else lived there.
When Mr Atkinson died, his executors claimed APR on the bungalow. HMRC did not agree – they said it was not occupied for agricultural purposes. The executors appealed and in March 2010 the First Tier Tribunal disagreed with HMRC and allowed APR on the bungalow on the basis that the partnership was in occupation.
This was an unexpected decision and it was no surprise that HMRC appealed to the Upper Tribunal. The case was recently heard by the Upper Tribunal who found in favour of HMRC. Unfortunately the executors of Mr Atkinson were unrepresented as they were deterred by the costs of the appeal and in particular the possibility of having to pay HMRC’s costs should they lose the appeal.
The Upper Tribunal decided in favour of HMRC. Their view was that the bungalow was not occupied for agricultural purposes and the visits by Margaret and Gary were not enough to establish occupation for agricultural purposes.
This is probably the outcome which most tax specialists were expecting and reinforces an earlier case of Harrold.
If a residential property is no longer lived in, even if the former resident is still a partner, then it is unlikely APR will apply. Similarly, if an elderly farmer lives in the house and is not actively involved on the farm, APR is at risk. All farmers should review their assets with a specialist who can advise on the potential Inheritance Tax liability and the risk of reliefs being lost. This will allow future planning both for the business and lifestyle to maximise available relief.
At Hay & Kilner, we have a team of specialists who are able to advise farmers and landowners on the availability of reliefs and the actions they should be taking to maximise their chances of securing relief in the future.
For further information please contact Alison Hall on 0191 232 8345 or email: email@example.com