Farmer in inheritance tax victory over HMRC could pave the way for refunds
NewsTuesday 11 June 2013
A recent court case has rejected an appeal by the taxman to charge inheritance tax on a Buckinghamshire farmhouse that was not under the same ownership as the farmland on which it was sat.
According to ThisIsMoney.co.uk this could lead to farming families across the country qualifying for tax refunds.
Traditionally, farmers have been able to exclude farmhouses from their state for inheritance tax purposes if they are part of working farms. This is known as agricultural property relief.
The Upper Tax Tribunal last week upheld the decision, which meant a farmhouse and its working farm does not have to be in the same legal ownership in order to secure the agricultural property relief.
This means that family farms can now apply for relief with relatively more ease if they are in a situation where the ownership and occupation of the estate has been split across a number of family members and trusts. Though, the HMRC is able to appeal the decision.
The dispute in question, was between the HMRC and a farmhouse in Milton Keynes, which had been owned and occupied by the late Joseph Hanson.
When Mr Hanson moved out of the farmhouse in 1978, it became occupied by his son who farmed the 128 acres of land he owned as well as the 25 acres owned by his father, along with some extra rented land.
In a number of farming families the ownership and occupation of the farmland and farmhouse are inconsistent which, Stephen Barratt, a director at accountants and business advisers James Cowper, said is where the difficulties rise.
According to Barratt, when he spoke to ThisIsMoney.co.uk, many of these families have assets spread across many members and generations, which can become complicated.
The relief from the inheritance tax was denied by the HMRC, who stated that the father didn’t own enough land in order to satisfy a ‘character appropriate’ test. Within the set of rules and regulations, this is an assessment that decides whether buildings are proportionate to the stated use of the land upon which they sit.
The court, however, came to the decision that the house and the land don’t have to be in exactly the same legal ownership for the relief to apply.
The entire area that was farmed by the son was taken into account by the Upper Tier Tribunal and their decision now opens up the door for claims that may have been wrongly refused, where the ownership of the farmhouse and its adjoining land isn’t the same.
ThisIsMoney.co.uk also reported that this could lead to owners of farmhouses restructuring their affairs in a more tax-efficient manner.
Picture: Thadd Selden