APR and the older farmer

Richard Ostle, Private Client Partner, writes about a recent tax tribunal concerning Agricultural Property Relief (APR).

Old Macdonald had a farm – but HMRC said he was no longer a farmer…

A recent tax tribunal ruling has highlighted the risks of the potential loss of inheritance tax reliefs for older farmers.

Agricultural Property Relief (APR)  from inheritance tax can be hugely valuable – and where it is successfully claimed it can provide a 100% exemption on farms, farmhouses and other agricultural assets from the charge to inheritance tax on death.

One problem that has caused a great deal of concern in recent years is the risk that HMRC may refuse to allow the tax relief if the farmer has stepped back from full and active involvement in the farm in the last years of life, becoming less ‘hands-on’, and allowing others to use and farm the land instead.

HMRC have taken the stance that if the owner of the farm is not actively involved in farming activities up until the date of death, the APR may be lost. 

The background to this case will be familiar to many involved in farming.  The farmer in question had for most of his adult life been a full-time, active farmer.  But as he got older, he did less hands-on farming himself. In later years he began putting out the pastureland on grazing licences, and in the end, he got rid of all his own cattle and stopped growing crops.

When the farmer died, HMRC refused to allow the APR claim his executors submitted on the value of the farmhouse.  Their stance was that the farmhouse had no longer been occupied ‘for the purposes of agriculture’ and was therefore just a normal house – and inheritance tax on its full value was payable at the full rate of 40% as a result.

HMRC took the view that the things which the farmer was still doing himself on the holding no longer amounted to ‘farming’ and that APR should not apply.

The tribunal disagreed – their ruling was that the deceased was still a ‘farmer’ for the purposes of the tax relief, and that therefore APR applied.

They allowed the claim for APR on the basis that they agreed with the executors’ argument that a wider range of activities than those accepted by HMRC should still count as ‘agricultural’ for the purposes of the tax relief, and that the farmer living in the farmhouse still had sufficient involvement with the work on the land to qualify for APR.

The tribunal considered whether the activities of the farmer had reduced so much by his death that he could no longer be said to be ‘farming’, but decided that although he had stopped rearing livestock of his own, the things that he did still do — such as fencing, drainage, ditching, harrowing, reseeding the grass, checking on livestock, and helping when animals were moved — were still those of a farmer, working an active farm.

Importantly, the tribunal ruled that ‘maintenance and keeping the land in good order are part and parcel of running a working farm; an integral part of farming is maintaining the productivity of land and cultivation falling within the scope of “agricultural activities”.’

This ruling gives welcome clarification for farming families and their advisers – but it remains a ‘hot topic’ and HMRC are likely to continue to look carefully on a case-by-case basis at whether they can challenge APR in similar situations.  So it is still essential for farmers, as they become older, to review their activities and record keeping arrangements to give themselves the best chance of keeping this very valuable relief.

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