Agricultural Property Relief: Bear Traps for the unwary

It is a general misconception that all agricultural land qualifies for agricultural property relief (APR) and that, as a consequence, any investment in such land is IHT effective.

The primary legislation is contained in IHTA 1984, ss115 –124C but the language, whilst plain and concise, is in the main without depth and lacking precise definition. This has prompted routine resort to the Courts in cases of interpretative doubt, as demonstrated in the case of Hanson v R&C Commissioners [2013] UKUT224 (TCC) which considered the question of the farmhouse in relation to land in multiple ownership. It is an interesting omission that despite its liberal use, the term ‘agricultural’ is not defined within the statute and falls by default to adopt the diverse definition set out in the Agricultural Tenancies Act 1995, namely:

…horticulture, fruit growing, seed growing, dairy farming and livestock breeding … the use of land as grazing land, meadow land, osier land, market gardens and nursery grounds… woodlands where that use is ancillary to the farming of land for other agricultural purpose...

The base legislative requirement demands that APR is restricted to agricultural value of agricultural property comprising agricultural land or pasture and used as such but expanded by IHTA 1984, ss115(2) and (4) (and FA 1995, s154(3)) to include:

  1. Woodland
  2. Buildings used in the intensive rearing of livestock or fish
  3. Cottages, farm buildings and farmhouses of character appropriate
  4. Breeding and rearing of horses (on a stud farm)
  5. Short rotation coppicing
  6. Land in conservation schemes

For categories 1 – 3 there is a further crucial requirement that the property must be occupied with the agricultural land which must itself not be dominated by that property. This condition alone has spawned numerous tax cases, many of which relate to the eligibility of the farmhouse (see Arnader (executors of McKenna Deceased) v HMRC [2006] STC (SCD) 800) or consider the position where access to Business Property Relief has been denied (see Williams v HMRC [2005] SpC500). Equally, eligibility to claim under item 4 is almost always challenged by HMRC on grounds that the Stud is not run on a business footing but rather operated as a hobby. It should also be noted that the mere grazing of horses used for recreational purposes will not qualify, nor is there an access to an automatic APR claim for land used for grazing of other animals.

In reality the scope of APR is not only narrow, being applied to agricultural not market value but restrictive, underpinned by the conduct of a clear farming activity, and littered with many bear traps. Accordingly, any professional advising in this area must not only tread with great care and be appropriately armed with sound knowledge of legislative interpretation but must also listen to established/current case law dicta.

Chris Erwood CTA ATT TEP

Company website: http://www.tax.org.uk/ http://www.cltint.com/chris-erwood

Chris Erwood is a qualified associate of both the Chartered Institute of Taxation and STEP.  She co-authors the Bloomsbury Professional Core Tax Annuals and Business and Agricultural Property Relief title. 

 

Written by Ellie MacKenzie

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