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Farmhouses - Another Taxpayer Victory

Another recent case has also been decided in favour of the taxpayer. The FTTT held that when determining whether a farmhouse qualifies for agricultural property relief (APR) from inheritance tax, the farmhouse needs to be in the same occupation, but not necessarily the same ownership, as the land to which it is of a "character appropriate"(Hanson v HMRC [2012] UKFTT 95 (TC)). 

The deceased was the life tenant of a trust created by his father and the trust held a property that was a "farmhouse" for APR purposes, in which the deceased's son lived and from where the son farmed 215 acres of land. Only a small proportion of this land was part-owned by the deceased; in fact the only land in both common ownership and common occupation with the farmhouse was 25 acres part-owned by the deceased and farmed by the son. 

HMRC had therefore argued 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. However the FTTT rejected this and concluded that, whilst the farmhouse needed to be in the same occupation as the property to which it was of a character appropriate, it did not need to be in the same ownership. As both the farmhouse and the land was occupied by the deceased's son, the deceased's interest in the farmhouse qualified for APR on his death. 

This is a very useful decision as it is not unusual for the ownership of a farmhouse to be separate from the ownership of the land farmed from it. HMRC do, however, believe this to be an important point and so it is likely that they will appeal.

Read more about The First Tier Tribunal.

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