Background

Agricultural Property Relief (APR) is a generous tax relief which can offer 100% or 50% relief on agricultural property which is transferred on death. The requirements for APR, as laid out in Section 117 of the Inheritance Tax Act 1984, are as follows:

  1. the agricultural property was owned and occupied by the transferor for the purposes of agriculture throughout the period of two years ending with the date of the transfer, or
  2. it was owned by the transferor throughout the period of seven years ending with the date of transfer and was throughout that period occupied (by the transferor or another person) for the purposes of agriculture.

Agricultural property is defined (in the Inheritance Tax Act 1984) as:

“agricultural land or pasture and includes woodland and any building used in connection with the intensive rearing of livestock … and also includes such cottages, farm buildings and farmhouses, together with the land occupied with them, as are of a character appropriate to the property.”

The recent case of Charnley v HMRC 2019 brought into question whether a farmhouse of a farmer who had taken a step back from intensive agricultural work could still be considered as agricultural property and therefore qualify for the relief.

Mr Gill died in 2013, appointing Mr Charnley and Mr Hodgkinson as his executors. His executors claimed around £1.1 million in APR as Mr Gill owned a farmhouse, some outbuildings and about 20 acres of pasture land which he had let out for grazing. Mr Gill had been a farmer, however, he did less ‘hands-on’ farming as he got older.

HMRC refused the executors’ claim for APR in relation to the farmhouse and the outbuildings on the basis that they were no longer used for the ‘purpose of agriculture’ and therefore did not qualify under the Inheritance Tax Act for the relief.

Inheritance Tax: Issues with Agricultural Property Relief

The Tax Tribunal’s Decision

When the case was considered in the Tax Tribunal, Judge Jennifer Dean and Mr David Moore concluded that the issue was whether there “was a functional nexus between Mr Gill’s occupation of the house and the agricultural activities carried out” (Paragraph 99).

Although Mr Gill had been less ‘hands-on’ in the later years of his life, he was still involved in farming activities such as:

  • Hedge-cutting
  • Harrowing
  • Fixing fencing
  • Digging out/clearing ditches
  • Rolling the fields
  • Helping when animals were moved

The Tribunal concluded that although the duties performed were “unquantifiable”, taken together they were “substantial” (Paragraph 116). Further, the buildings owned by Mr Gill were used for storing agricultural equipment. It was therefore decided that Mr Gill could be said to be carrying out sufficient agricultural activities on his land to qualify for the relief.

What does this mean for agricultural land users?

This is worth bearing in mind for those who have an estate which may be vulnerable to questioning over how it is used and whether it is agriculturally ‘character appropriate’, as the criteria for qualifying for APR can be hard to meet. The considerations in this case underscore a pragmatic approach by the Tribunal when considering whether to allow the understandably desirable APR relief.

Next Steps

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