“What between the duties expected of one during one’s lifetime,
and the duties exacted from one after one’s
death, land has ceased to be either a profit or a
pleasure”
KEY POINTS
APR = Agricultural Property Relief
BPR = Business Property Relief
APR is not just business relief for farms
There is an interaction b/n APR and BPR and both may be available
Beware Grannies in the Attic
STARTING AT THE BEGINNING
THE INHERITANCE ACT 1984
• APR - Ss 115 - 124C
• BPR - Ss 103 - 114
FINANCE ACT 1986
• Reservation of Benefit - s102 and Sch 20
Contrary to Lady Bracknell’s opinion, the aim of the inheritance tax regime is to keep most family run businesses “in the family”
Without APR and/or BPR the business/assets would have to be sold to pay IHT
It is unusual to be involved in a claim for APR without a linked claim for BPR
APR
Not just business relief for farms
applies only to agricultural land and buildings occupied with that land
applies only where the land and buildings have been “occupied for agriculture”
applies only where owned and occupied for a minimum period - 2yrs
takes only the “agricultural value” of the land and buildings out of IHT
115 Preliminary. (1) In this Chapter references to a transfer of value include references to an occasion on which tax is chargeable under Chapter III of Part III of this Act (apart from section 79) and—
(a) references to the value transferred by a transfer of value include references to the amount on which tax is then chargeable, and
(b)references to the transferor include references to the trustees of the settlement concerned.
(2) In this Chapter “agricultural property” means agricultural land or pasture and includes woodland and any building used in connection with the intensive rearing of livestock or fish if the woodland or building is occupied with agricultural land or pasture and the occupation is ancillary to that of the agricultural land or pasture; and also includes such cottages, farm buildings and farmhouses, together with the land occupied with them, as are of a character appropriate to the property. (3) For the purposes of this Chapter the agricultural value of any agricultural property shall be taken to be the value which would be the value of the property if the property were subject to a perpetual covenant prohibiting its use otherwise than as agricultural property (or, in the case of property outside the United Kingdom, the Channel Islands and the Isle of Man, if it were subject to provisions equivalent in effect to such a covenant) (4) For the purposes of this Chapter the breeding and rearing of horses on a stud farm and the grazing of horses in connection with those activities shall be taken to be agriculture and any buildings used in connection with those activities to be farm buildings. (5) This Chapter applies to agricultural property only if it is in—
(a) the United Kingdom, the Channel Islands or the Isle of Man, or
(b) a state, other than the United Kingdom, which is an EEA state (within the meaning given by Schedule 1 to the Interpretation Act 1978) at the time of the transfer of value in question.
“Agriculture”
Not defined in IHTA
• except at s115(4) which treats “the breeding and rearing of horses on a stud farm” as agriculture for the purposes of APR.
IHTM24061 - The HMRC Manual
• cultivation to produce food for human and animal consumption
• use of land to support livestock kept to produce food for human consumption
• keeping such other animals as may be found on an ordinary farm
• breeding and grazing of racehorses on a stud farm
• land set aside for permanent or rotational fallow
• cultivation of short rotation coppice
“Agricultural Property”
S115(2) IHTA:
• “agricultural property” means agricultural land or pasture and includes woodland and any building used in connection with the intensive rearing of livestock or fish if the woodland or
building is occupied with agricultural land or pasture
and the occupation is ancillary to that of the agricultural land or pasture; and also includes such cottages, farm buildings and farmhouses, together with the land occupied with them, as are of a character
appropriate to the property.
Woodland on its own will not qualify
• but might qualify for BPR
• deferral of the value of growing timber
A building used for intensive rearing of animals will not qualify if no land is occupied with it
but might qualify for BPR
Farm buildings, including farmhouse and cottage will not qualify unless “of a character appropriate” to farmland which is in the same occupation
Land used for horses does not qualify unless:
• is part of a stud farm
• the horses are used for agricultural purposes, or
• they are being farmed for meat
other equine businesses may qualify for BPR
A little more detail
“of a character appropriate”
“Agricultural Relief …provides an exemption for farmhouses, which anecdotal evidence suggests provides a cover for a large number of country cottages, “fake farmhouses”, to be passed on tax free. At the least, it may be desirable to tighten the definition of agricultural property to close this loophole.” “Fair Dues - Towards a more progressive inheritance tax”
Dominic Maxwell - August 2004 - The institute for Public Policy Research
Perhaps the most troublesome concepts in APR
APR is all or nothing
Even if a claim to APR succeeds, victory may not be total - relief if restricted to “agricultural value”
When is a farmhouse not a farmhouse?
• The “elephant test”
• you know it when you see it
When it is a fine house with a bit of land
• “Lifestyle farming”
• The farmer who “gets old”
The “Antrobus” checklist:
• Is the house appropriate, by reference to its size, content and layout, to the farm buildings and the particular area of farmland being farmed?
• Is the house proportionate in size and nature to the requirements of the farming activities conducted in the agricultural land or pasture in question?
• Is the subject property “a family home of some distinction”?
• Would an educated rural layman regard the property as a house with land or as a farm?
• How long has the house in question been associated with the agricultural property? Was there a history of agricultural production?
Further detail
“in the same occupation”
There must be a nexus between the agricultural property and other agricultural land or pasture
Ownership v Occupation
HMRC v Hanson [2013] UKUT 0224
• A landmark case
• Determined that beneficial and other interests in land is as good as legal ownership for the purposes of IHT and APR
• here common ownership following lifetime gifts of land
Whether owned or occupied, it must be for the purposes of agriculture
• ie by an individual actively involved in farming activities
Cottages
Must be occupied by a farm worker
Unlike farmhouses can be occupied by
• retired farm employee or
• surviving spouse/civil partner if
• the occupier is a statutory protected tenant, or
• the occupation is under a lease granted to the worker for their life and that of the surviving spouse/civil partner as part of their employment contract
Lifetime Gifts
7 years survival
If less than 7 years value is added back and APR will be available if:
at date of gift the property qualified for APR;
The property was owned by the transferee from date of transfer to date of death of the transferor;
not subject to a binding contract for sale; and
at date of death it is still agricultural property and has been occupied for agricultural purposes throughout
Timing is critical
117 Minimum period of occupation or ownership.
Subject to the following provisions of this Chapter, section 116
above does not apply to any agricultural property unless—
(a) it was occupied by the transferor for the purposes of
agriculture throughout the period of two years ending with the
date of the transfer, or
(b) it was owned by him throughout the period of seven years
ending with that date and was throughout that period occupied
(by him or another) for the purposes of agriculture.
Minimum period of ownership and/or occupation:
• occupied the property for agricultural purposes for the 2 yrs immediately before transfer; or
• owned it for the 7 yrs immediately before transfer and throughout that time it was occupied (by transferor or others) for agricultural purposes.
If inherited - ownership/occupation runs from date of death of the previous owner.
If a spouse or civil partner inherits, relief runs for any period which the deceased owned or occupied it
Sighs of Relief
S116 sets out the relief available and the rules for determining it, briefly:
100% available if:
• At date of transfer, transferor has right of vacant possession or could obtain it within the next 12 months, or
• Land is let on grazing licence, or
• Property is let on a tenancy beginning on or after 1 September 1995, or
In all other circumstances, relief is reduced to 50%
100% of what?
Relief is only available on the “agricultural value” of the property.
• s115(3) ITHA
For the purposes of this Chapter the agricultural value of any agricultural property shall be taken to be the value which would be the value of the property if the property were subject to a perpetual covenant prohibiting its use otherwise than as agricultural property (or, in the case of property outside the United Kingdom, the Channel Islands and the Isle of Man, if it were subject to provisions equivalent in effect to such a covenant)
Specialist valuation may be in order when calculating IHT
Does not include any development value or value attributable to mining rights etc
APR ROUND UP
IS THE LAND BEING USED FOR AGRICULTURAL PURPOSES?
ARE THE BUILDINGS BEING USED FOR AGRICULTURAL PURPOSES?
IS THERE AN ACTIVE FARMER LIVING IN THE FARMHOUSE?
IS THERE A TENANT - WHEN WAS THE TENANCY CREATED?
IS THERE DEVELOPMENT POTENTIAL?
IS THE AGRICULTURAL VALUE SIGNIFICANTLY LOWER THAT THE OPEN MARKET VALUE OF THE FARMHOUSE?
IS BPR AVAILABLE WHERE APR IS NOT?
Qualifying and non-qualifying activities
• Letting of Farm Property
• Caravan Sites
• Grazing Licences
• Holiday Lettings
• Serviced Business Lettings
• Property Developers
In summary, if possession and enjoyment of the
gift is not bona fide assumed by the donee at or
before the beginning of the “relevant period” or if
at any time during the relevant period the gift is not
enjoyed to the entire exclusion, or virtually to the
entire exclusion, of the donor then the gift will be
one in which the donor has reserved a benefit.