The case of the William Charnley & Maxwell Hodgkinson as Executors of the Estate of Thomas Gill (deceased) v HMRC  TC7425 explored claims of Agricultural Property Relief ("APR") and Business Property Relief ("BPR") against Inheritance Tax (IHT) in relation to farmhouses and outbuildings.
The deceased owned Woodlands Farm which consisted of the following:
- The house where he lived,
- A yard, brick barn and other outbuildings,
- 19 acres of bare agricultural land,
- A range of buildings and yard let to a company for the storage of commercial grass cutting equipment, and
- A separate residential dwelling. (This was let out and did not form part of the claims for APR and BPR)
The deceased did not own any livestock for the two years preceding his death. He allowed another farmer to graze his livestock on the agricultural land under annual grazing licences. Despite not owning the livestock, the deceased had daily involvement in tending to the animals and the general upkeep and maintenance of the land. He also grew crops on an acre of the land. He received farming subsidies.
The executors claimed APR in respect of the value of the whole lands, farmhouse, the brick barn and all other outbuilding at Woodlands farm and BPR in respect of the farming vehicles and activity of the deceased.
HMRC rejected the claim of APR in respect of the farmhouse, the brick barn and all other outbuilding and the BPR claim in full.
It was HMRC's view that the house was not a “farmhouse” and thus did not constitute “agricultural property” and neither the house nor the other buildings were occupied by the deceased “for the purposes of agriculture” throughout the period of two years ending with his death.
BPR was refused on the basis that the business carried on by the deceased was not “relevant business property” as it consisted “wholly or mainly of…making or holding investments”.
The executors appealed First-Tier Tribunal Tax Chamber (FTT). The FTT allowed the appeal.
During the hearing, evidence was led by the executors showing the nature and frequency of farming activities undertaken by the deceased.
The Tribunal concluded that the activities carried out by the deceased were those of a farmer, working an active farm. It was held that the acre of crops farmed using tractors and similar machinery and sold/exchanged at a local shop went beyond what would be expected of a hobbyist gardener.
The Tribunal found that the activities were not carried out to obtain income and could not be regarded as a business of holding investments; the farming work was done to maintain the business of an active working farm.
The Tribunal held that the house, brick barn and outbuildings qualified for APR and the business carried by the deceased satisfied the criteria for BPR.
The case of William Charnley & Maxwell Hodgkinson as Executors of the Estate of Thomas Gill (deceased) v HMRC highlights some of the complexities involved in applying for IHT relief. It is advisable that you periodically review assets owned to confirm their IHT treatment.
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