Agricultural Property Relief (APR) can operate to reduce the extent to which agricultural property is exposed to inheritance tax upon the death of the owner. The potential inheritance tax reduction could be up to 50 or 100 percent.
For APR purposes "agricultural property" is defined in section 115(2) of the Inheritance Tax Act (IHTA) 1984, as meaning:
- Agricultural land or pasture
- Woodlands occupied with (but ancillary to) agricultural land or pasture
- Buildings used in connection with the intensive rearing of livestock or fish - provided the buildings are occupied with (but ancillary to) agricultural land or pasture
- Farmhouses, cottages and farm buildings, and the land occupied with them (such as garden or grounds) - that are of a character appropriate to the property (i.e. agricultural land/pasture)
The question therefore arises whether, for a farmhouse or cottage to qualify for APR, it must meet the conditions of common occupation and common ownership to the land of which it is a 'character appropriate', or whether common occupation be enough.
In the case of Hanson v HMRC [2012] UKFTT 95 (TC) the First-Tier Tax Tribunal held that the farmhouse, and the land to which it is of a "character appropriate", must be in the same occupation, but do not need to be in the same ownership.
In reaching this decision the tribunal applied a 'literal construction' to section 115(2) and held that occupation rather than ownership was the important factor.
This decision goes against HMRC guidance. However, previous authorities have not expressly stipulated a need for common ownership and occupation.
It is likely that HMRC will appeal the Hanson v HMRC decision. The outcome of any appeal may be of significance to many farmers as this not only applies to farmhouses but other agricultural buildings such as cottages and farm buildings.
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