Farming families welcome HMRC defeat16.08.2013
On 21 May, HMRC was defeated in the long-running court case, HMRC v JN Hanson, concerning the charging of Inheritance Tax (IHT) on farmhouses where the farmhouse and farmland are not in common ownership.
In the dispute, HMRC had argued that although the farmer, Mr Hanson, occupied both the house and land, since the assets were under different ownerships Agricultural Property Relief (APR) would not be available. To qualify for APR for IHT purposes, it is stated that a farmhouse must be "of a character appropriate to the land being farmed", and that there must be adequate land to make up a feasible farming unit; i.e. the larger and grander the farmhouse, the more land it must have to qualify.
According to HMRC, the farmhouse and the land used for agricultural reasons had to be owned in the same name. They claimed that since the deceased father, who had owned the farmhouse for IHT reasons, only owned 25 acres of land directly, then the farmhouse did not qualify as appropriate to the character of the farm, and was therefore not subject to APR, despite the fact that the son, who was living in the property, owned and worked 128 acres of land.
Consequently, it came as a relief to many farming families to hear that the Upper Tax Tribunal stated that the legislation does not require common ownership, and APR from IHT on farmhouses is allowable where the farmhouse and farmland is not in common ownership, but is in common occupation. It is quite normal for assets to be spread across different family members, and the ownership and occupation of the farmland and farmhouse are often inconsistent in many farming families.
This welcome decision could open the doors to an increase in claims for APR on farmhouses that may have formerly been refused due to this common occurrence of fragmented ownership. Additionally, it might provide an opportunity for farming families to structure their affairs in a more tax-efficient manner. If elderly parents wish to retire and want to transfer the land to other family members, but not the house, then as long as it can be ensured that the same people that farm the land occupy the farmhouse, the house should qualify for APR.