HMRC Sees Sense Over Farmhouse

Posted: 6th July 2011

 House in CountryFarmers will give a sigh of relief following a decision of the First Tier Tribunal in a case in which HM Revenue and Customs (HMRC) attempted to deny Agricultural Property Relief (APR) for Inheritance Tax (IHT) on a farmhouse.
APR operates to exempt wholly or partially the agricultural value of an agricultural property from IHT in situations in which a chargeable transfer would otherwise occur. The relief includes ‘any farmhouses, cottages or buildings, which are of a character appropriate to the property’.
The Tribunal concluded that, based on the history of the agricultural holding, the three-bedroom farmhouse should qualify.
The HMRC guidance states that ‘Normally a farm cottage or farmhouse occupied by someone who is not employed in agriculture will not qualify for relief. By concession, a cottage occupied by a retired farm employee or their widow, widower or surviving civil partner is treated as being occupied for agricultural purposes if either:
  • the occupier is a statutorily protected tenant; or
  • the occupation is under a lease granted to the farm employee for his or her life, and that of any surviving spouse or civil partner, as part of the employee's contract of employment by the landlord for agricultural purposes.’
It was the ‘character appropriate’ restriction that was seized upon by HMRC to contest the claim for APR, the tax man arguing that the property was not appropriate for a 16-acre smallholding.