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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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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