Anyone wanting to claim agricultural property relief (APR) from Inheritance Tax on a farmhouse or business property relief (BPR) as a farmer must be actively farming in the last years of life, a recent Tribunal has confirmed.
These reliefs from Inheritance Tax are very important and failure to achieve them can be very costly on the death of a farmer and so understanding the latest thinking on this matter is important for those wishing to plan their affairs for future generations.
Therefore, the judgement in a recent tax case, Charnley v HMRC makes interesting reading. In this case, the First Tier Tribunal concluded that in order to gain the benefit of these reliefs, one needs to demonstrate clear evidence to show that the “farmer” is actively farming in their final years of their life which is not always easy for very elderly people.
In this case, HMRC argued that the farmer in question, Thomas Gill, had let his land on grazing licences and was therefore no longer actively farming, while Mr Gill’s executors maintained he had continued to actively farm until his death.
The Tribunal concluded that by undertaking the day-to-day husbandry of the grass and animals, even though the animals belonged to someone else, Mr Gill had been actively farming, so the farmhouse qualified for Agricultural Property Relief (APR) and the machinery for Business Property Relief (BPR).
Therefore, it seems the deceased needs to have been undertaking positive husbandry of the grass and livestock as a farmer in the last two years of life to achieve full relief. If they do not, while the land could still qualify for full APR on its agricultural value, the house and any other business assets would not qualify for APR or BPR.
Jeremy Moody, secretary and adviser to the Central Association of Agricultural Valuer has commented that, “The work undertaken needs to be farming husbandry, not just maintenance of property like fences, hedges, ditches and gates. Other cases have failed on this point. Had Mr Gill – for health or other reasons - not been managing the grass and looking after the stock grazing his land; despite not owning them, it is likely that he would have been found not to be farming and so not eligible for APR or BPR on the house and machinery.”
Good evidence of husbandry should come in the form of contemporary records, invoices, field books and witnesses to the facts, he adds. “In this case the grazier’s testimony as to what actually happened on the ground was critical – summarising it as Mr Gill farming his land using the grazier’s animals.”
So, anyone wanting to ensure their estate is eligible for APR or BPR should take advice to make sure they are conducting their affairs in a compliant manner and if not, prepare their affairs for the tax liability which is likely to arise on death.
For further information, contact James Stephen, Partner (email@example.com / 01823 428860), or your local Carter Jonas office.