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Farmers and IHT

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Agricultural Property Relief is valuable to farmers in reducing the impact of Inheritance Tax (IHT) on their estates. The farmhouse, or other living accommodation, often gives rise to difficulties. In a recent case before the Upper Tribunal (Tax & Chancery) a question arose as to the availability of the relief where a farmer, Mr Atkinson, let his farm in Carnforth to a family farming partnership (WM Atkinson & Son) in which he was in partnership with his wife and his son and, later, his grandson. Mr Atkinson and his wife occupied a bungalow which had been built on the farm holding in 1966.

In 2002, Mr Atkinson became ill and, after a spell in hospital, he had to move to a care home. He remained involved in the business and occasionally visited the bungalow where he kept his belongings. He died on 20th October 2006.

To qualify for Agricultural Property Relief, the property must have been “owned by [the deceased] throughout the period of seven years ending with [the death]” and “throughout that period occupied (by him or another) for the purposes of agriculture”. The Tribunal, in a decision sympathetic to the taxpayer, had decided that Mr Atkinson’s occupation of the bungalow was for the purposes of agriculture because “the bungalow was still used to accommodate the diminishing requirements of the senior partner”.

The Upper Tribunal upheld an appeal by HM Revenue and Customs taking a more literal, and less liberal, view in concluding that on the facts “the bungalow was no occupied for the purposes of agriculture throughout the seven years prior to Mr Atkinson’s death.”The full decision is available here.

The decision will be unwelcome to farmers who, as in this case, risk losing the benefit of a valuable relief simply because ill-health in their later years may prevent them from satisfying the occupation conditions.

[SWLaw is able to offer advice to farming clients on succession planning and IHT. See further our services for Agricultural clients].