Leading South West chartered accountants and tax consultants, Albert Goodman, in partnership with law firm Clarke Wilmott, wins agricultural property relief (APR) case for client, who receives an inheritance tax repayment of approximately £140,000 plus interest. The win overturns HM Revenue and Customs’ (HMRC) decision after two years of correspondence.
Despite accepting HMRC’s argument at the time and paying the inheritance tax (IHT) bill, the family sought third party advice on the death of their father. Albert Goodman and Clarke Wilmott put the argument to HMRC to re-open the case to allow a proper application of the statutory tests for relief.
Sam Kirkham, Partner at Albert Goodman, says, “This case highlights the importance of getting evidence of the day to day farming activities at the time so that the best case can be put forward to HMRC for a claim for APR. We believe there may be other similar cases that have been lost by the taxpayer but whose argument was not correctly considered at the time.”
Initially, the client, a farming family from Dulverton, Somerset, asked Albert Goodman to review the basis on which inheritance tax was charged on a farmhouse left on the death of his father, as APR was denied on the basis that the farmhouse did not meet the character appropriate test.
APR provides for up to 100% relief from inheritance tax on the value of the agricultural property. However, to qualify the farmhouse must be agricultural property, occupied for the purposes of agriculture, and the property must then meet the character appropriate test.
In this case, although HMRC agreed the farmhouse was agricultural property and occupied as such, they denied APR because they argued the farmhouse was not a character appropriate to ‘the property’.
In this case the deceased owned approximately 292 acres, but shortly before his death, entered into farm business tenancies (FBTs) letting approximately 280 acres to his two sons. This led HMRC to argue that the remaining 12 acres were not enough property for the purposes of the character appropriate test. The land held under the FBTs was not used in the test.
It was Albert Goodman and Clarke Wilmott’s view that APR did apply to the farmhouse and the case should be reconsidered.
Kirkham explains: “When we looked at the case, we considered additional factors and previous cases. We argued that the land held on the FBTs could be included in ‘the property’ for the character appropriate test for our client – as the father continued to occupy the land included in the FBTs to carry out farming activities and at the date of death he had approximately 70 sheep and would graze his sheep in whichever field he chose from time to time.
“As is HMRC’s own practice, it is not what the parties could have done, nor what the parties had a right to do, but what the parties actually did, that is significant when determining what land is available for the character appropriate test. The test of occupation is a factual one.”
In cases of this nature, time is of the essence if they are to be reconsidered, and this case highlights the importance of keeping evidence of the day to day farming activities of the landowner in order to protect tax reliefs.