Agricultural Property Relief – a common sense approach
These days of austerity have resulted in a recession of gigantic proportions and naturally the government exchequer is not immune, with the tax take significantly reduced over the last three years or so. It might then be hardly surprising that HMRC could be looking at angles to collect more where they can and most recently there have been initiatives in respect of offshore accounts, the medical profession and more recently plumbers.
Whilst the case studied here is not a case involving undeclared income, it perhaps demonstrates that there might well be more challenges to legitimate claims for tax reliefs – in this example Agricultural Property Relief with regards to Inheritance Tax.
This case concerns an elderly gentleman called Mr Golding who owned and worked a sixteen acre smallholding in Staffordshire and who had done since 1965. Whilst in his seniority, the activities at the farm had, not surprisingly, reduced until Mr Golding was growing vegetables for his own use and producing eggs which he sold to 15 or so customers – the profits had reduced to below the minimum wage. When he sadly passed away, Agricultural Property Relief (APR) was claimed on the smallholding to reduce the liability of his estate to Inheritance Tax. The HMRC accepted the claim in respect of his land and buildings, but argued that the three bed farmhouse was not eligible for the relief. Their argument was that the house was not of a character appropriate for APR purposes. A notice of determination was subsequently issued.
As a result, the case was referred to a First Tier Tribunal which followed an appeal against the HMRC’s notice of determination that the house was ineligible for relief.
The judgment handed down on 18th May 2011, in the case of Golding v Her Majesty’s Revenue and Customs, is an important one for the taxpayers involved and for the owners of agricultural property at large. The Tribunal looked at the issue of the farmhouse being of a character appropriate for APR and concluded that on the historical facts, the type of property and the owners intentions and actions, the house was eligible for Agricultural Property Relief.
Whilst it was common ground that the activities at the holding had reduced, the Judge stated that it would be unreasonable to expect the activities of a man in his eighties to be extensive. Furthermore, Mr Golding’s actions (he had recently bought some farm equipment) showed that he intended to carry on farming.
In my opinion, the Judge has taken the right view; HMRC’s arguments appear to be based around the financial viability of the smallholding. What the Judge has done is taken all factors into account, the history of the property and not only current activities but also previous activities. The Judge has taken a common sense approach in confirming that the level of activities must change when owners become older and has taken a far more rounded approach in considering the circumstances and thereby concluding that Mr Golding was working the farm when he died. The reduction in activities at the farm did not, on its own, preclude a claim for the relief.
It is hoped that this will be a landmark case in terms of the determination of Agricultural Property Relief decisions but it should be noted that HMRC has until mid-July to appeal the decision.
Whether they will do so is a wait and see situation.