A HEREFORD tax partner says farmers need to be aware of recent developments in inheritance tax which may affect them.
Lucie Hammond, tax partner in Baker Tilly’s Hereford office, says a Tax Tribunal decision provides clarification for farmers on whether a farmhouse qualifies for agricultural property relief.
She says the decision is welcome news for many farmers, many of whom own a farmhouse but no longer own all of the surrounding agricultural land.
Agricultural land ordinarily attracts agricultural property relief from inheritance tax and where the farmhouse on the land ‘is of a character appropriate to the property’, which means that the farmhouse is proportionate in size to the farmed land surrounding it, then the farmhouse also attracts agricultural property relief.
However, until this case HMRC had taken the view that agricultural property relief only applied to farmhouses where the attached agricultural land was owned by the same person.
It is common for the older generation of farming families to gift the working farmland to children but to continue living in the farmhouse. Until this decision they have have been unable to claim agricultural property relief.
“This month HMRC will be amending the way IHT relief is applied to farmland and farming assets purchased with borrowed money, with emphasis placed on the purpose of the loan, rather than the asset used for security for the loan,” said Lucy.
“In addition to that, this case looks like it could be significant for certain farmers, providing a welcome extension to the application of agricultural relief for many who were previously excluded.
“As HMRC lost this case at both the first tier tribunal and also at the upper tax tribunal following an appeal, it seems pretty conclusive and it may even open up the prospect of claiming the relief retrospectively where it was previously refused.”
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