Inheritance tax boost for farming families

A recent ruling in a landmark tax case regarding the inheritance tax (IHT) relief available on farmhouses provides owners with greater scope for tax planning.

Following the Upper Tribunal’s decision, agricultural property relief (APR) – which provides 100 percent IHT relief – can apply where a farmhouse and farmland are not owned by the same person, but are in common occupation.

The case involved a farmhouse which had been occupied by Joseph Hanson until 1978, when his son moved in. Consequently, while Mr Hanson continued to own the property, it was his son who lived there and actively farmed the 215 acres of land.

Of the 215 acres, just 25 acres were owned by Mr Hanson, with 128 acres belonging to his son and the rest either rented or owned by third parties.

While HM Revenue & Customs (HMRC) agreed that the property was occupied for agricultural purposes, it argued that because the farmhouse had a different owner to the surrounding land, APR did not apply.

However, the Upper Tribunal said that HMRC needed to take into account the whole area farmed by the son, which meant the property and the land were connected by common occupation, even though there was no common owner.

This ruling is great news for the farming community, as the question of whether APR can be applied has had many grey areas. With the ownership of property and land often spread across different family members and generations, correctly assessing the IHT liabilities of a particular estate can be complicated.

While this ruling provides some clarity and could lead to more APR claims where the ownership is either unclear or disjointed, the Upper Tribunal added that common occupation will not always be a sufficient connection, so it is vital to seek expert advice before taking any action.

The Wills, Probate and Trusts Department at Palmers Solicitors is headed by a member of the Society of Trusts and Estates Practitioners (STEP) and staffed by sympathetic and experienced personnel, who can advise on minimising inheritance tax liabilities.

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