Although widely misconceived, purchasers do not have to obtain a building survey when they...
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The availability of agricultural property relief from Inheritance Tax is an important consideration for farming businesses and those who wish to invest in agricultural property.
While there are plenty of ways to preserve 100% agricultural property relief on farmland, even if one is no longer actively farming the land on a day-to-day basis, the position relating to the farmhouse itself is more complex.
The now infamous Antrobus case has provided a 5-pronged approach when applying for agricultural property relief:
If the farmhouse does not pass these tests it will fail to qualify for the relief and Inheritance Tax will be payable at 40% on the open market value of the property.
Another consideration is that it is not always the farmhouse residents who carry on the day to day farming business. Those who use contract farmers should be particularly careful following the case of McKenna in which the farming was carried out by contract and the management of the contractor was carried out by an agent. Agricultural Property Relief was refused.
If a contract farmer is used, those residing in the farmhouse are advised not to use agents to manage the contract but to take an active role themselves or maintain a close relationship with those managing the farm, using the farmhouse as their base. Documents should be kept in the farmhouse and any meetings should take place there. Essentially, it is crucial to demonstrate to the Revenue that the farmhouse is the hub of farm activities.
If the executors successfully claim that the farmhouse is indeed a true farmhouse then the valuer must provide both an agricultural value and an open market value of the property. The agricultural value is calculated subject to a restriction that the farmhouse may only ever be used for agricultural purposes and therefore will be lower than the open market value. As a rough guide the Revenue makes an initial assumption that the agricultural value (on which you can gain relief) is approximately 70% of the open market value; therefore Inheritance Tax at 40% will be due on the remaining 30%.
These cases show that farmers should keep an eye on the Revenue’s movements and take up to date advice in order to minimise tax yet retain the security of their business for successive generations.
For advice on any aspect of the law mentioned in this article, contact Vicky Raynes or one of the Rural Business Team at Birkett Long LLP on 01206 217611.