Hanson v HMRC [2012] UKFTT 95 (TC) 

The First-tier Tax Tribunal has held that when determining whether a farmhouse qualifies for agricultural property relief (APR) from inheritance tax, the farmhouse and the land to which it is of a “character appropriate” must be in the same occupation, but need not be in the same ownership.

A reminder of where “character appropriate” comes from:

Agricultural property” is defined for APR purposes in section 115(2) of 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 described above.

Some background

Immediately before his death in December 2002 Joseph Charles Hanson was the life tenant of a trust created by his father in 1957.  The trust held a property that both parties in this matter agreed was a “farmhouse” for APR purposes and had an open market value in December 2002 of £450,000.

Mr Hanson’s son lived in the farmhouse which he had occupied since 1978 under a rent free licence. From there the son farmed 215 acres of land of which 128 acres was owned by the son and 25 acres was part owned by Mr Hanson.  The remainder of the 215 acres comprised 20 acres rented by the son from a third party and a further 42 acres whose ownership was unspecified.

The only land in common ownership and common occupation with the farmhouse was the 25 acres part owned by Mr Hanson and farmed by the son.

Following Mr Hanson’s death his executors claimed APR on the value of his interest in the farmhouse.  HMRC denied the relief on the basis that there was insufficient agricultural land in both common ownership and common occupation with the farmhouse for the farmhouse to pass the “character appropriate” test.

The son appealed the decision in his capacity as sole trustee of the trust arguing that common occupation was the only connecting factor required between the farmhouse and the agricultural land to which it was of a character appropriate.  The Tribunal agreed with the son.

This decision may be of significance in situations where a downsizing farmer has moved out of the farmhouse and gives away much of the agricultural land.

This decision is likely to be appealed by HMRC.

The full judgment is available here.