Golding v HMRC May 2011  

The First-Tier Tax Tribunal recently ruled that a farmhouse is entitled to full agricultural property relief (APR)  from inheritance tax even though the aged occupant only sold a few eggs to a handful of customers.

HMRC accepted the claim for APR on the land and other buildings but they did not accept that the 3 bedroom farmhouse, which was in a poor state of repair, was eligible for the relief.  The deceased had farmed a 16-acre smallholding in Staffordshire since 1965.

HMRC argued that the three-bedroom farmhouse was not eligible for APR because it was not of a “character appropriate” for APR purposes.  A Notice of Determination that the farmhouse did not qualify for APR was subsequently issued by HMRC.

The Tribunal heard that the level of activity on the smallholding had decreased over the years and, in the period leading up to his death, Mr Golding had grown vegetables mainly for his own consumption and sold a few eggs to some 15-20 customers.  Whilst the level of profits was below the National Minimum Wage, it was concluded that the deceased was still working his holding, as a farm, when he died.

On the main issue of whether the farmhouse was or was not of a “character appropriate” for APR the Tribunal concluded that on the basis of the historical facts of the holding, the type of property, as well as the taxpayers’ intentions and actions, the house should qualify for APR.

The Tribunal also stated that it would be unreasonable to expect the activities of an 80-year old to be extensive in nature. It was also clear from the taxpayer’s actions that he intended to carry on farming. This was shown by the purchase of new equipment by Mr Golding shortly before his death.

HMRC have until mid-July to appeal this decision.

HM Treasury has now published its consultation document on the new 36 per cent rate of inheritance tax where at least one-tenth of an estate is left to charity.

The consultation closes on 31 August.  The legislation is not likely to come into effect until the 2012-13 tax year.

The consultation paper is available here.

HMRC launched 9,368 investigations into Inheritance Tax valuations over the last year and is actively targeting estates and beneficiaries say tax advisers UHY Hacker Young.

In instances where additional tax was payable, this averaged £24,600 per case.  Based on HMRC figures, approximately £70 million of additional tax was raised as the result of HMRC challenging the valuations of properties included in the estate of a deceased person in 2010.

HMRC has previously advised estate beneficiaries to obtain several property valuations and strongly recommends the engagement of a professional valuer or chartered surveyor.

HM Treasury’s consultation paper on the proposed 10 per cent inheritance tax charity relief is to be published on 9 June.

The UK Chancellor’s Budget proposal, which will come into effect in April 2012, will reduce the rate of inheritance tax from 40 per cent to 36 per cent, if at least 10 per cent of a person’s estate is given to charity.

In his recent Budget, the UK Chancellor announced his decision to abolish 43 tax reliefs.  This followed the independent Office of Tax Simplification’s (OTS) March 2011 report reviewing the number and complexity of tax reliefs in the UK tax system.  The original report identified 1,042 reliefs.

HM Treasury are now seeking additional evidence on the impacts of removing 36 of these reliefs, and comments on the transitional arrangements that might help to minimise these impacts.   The consultation can be found on the HM Treasury website and closes on 31 August 2011.

89 inheritance tax reliefs were identified in the interim report.   The consultation recommends that a full review of inheritance tax is undertaken rather than a separate review of the reliefs identified.

HMRC has published new guidance on mourning costs that can be deducted against IHT

From 6 April 2011 the DOTAS (disclosure of tax avoidance schemes) regime applies to inheritance tax planning, including lifetime transfers to trusts.