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There are many cases where HM Revenue and Customs (HMRC) have argued that part of a farming business is chargeable to Inheritance Tax (IHT). It is dangerous to assume that 100% Agricultural Property Relief (APR) or Business Property Relief (BPR) will apply to every asset in a modern farming business.
The key here is to look at the differences between APR and BPR:
It is the final point that has caused much uncertainty and has been the subject of dispute with HMRC in recent years:
If a caravan park consists mainly of annual pitch fees, rather than from touring caravans or campers, then it could be considered an investment business. To obtain BPR it is necessary to show that a considerable range of other services are offered to visitors.
When a business is receiving income from a range of non-farming activities, APR will not be available on the full value of the farm. If it can be shown that the business is predominantly a trading business then the whole property can qualify for BPR. This has been the subject of several tax tribunals and court cases, and involves analysing a number of different factors – turnover, profit, asset value, and management time.
HMRC has successfully denied BPR on most holiday cottages. There was a recent case involving a business on the Scilly Isles where BPR was allowed, but despite being described by the judge as providing an exceptional level of service, it only just qualified for BPR.
In another recent case, a horse livery business successfully claimed BPR as it was able to show that it provided a range of services over and above the provision of a stable and grazing. However, other livery businesses, particularly those offering DIY livery, will find it difficult to convince HMRC that they are providing sufficient services to qualify for BPR.
To be a farmer, the landowner must be seen to be carrying out husbandry on the land. If the grazier fertilises the land and sprays weeds, then it is the grazier not the landowner who is the farmer for tax purposes. Similarly barter arrangements where the grazier pays for the fertiliser in exchange for a lower grazing rent should also be discouraged as it could result in loss of IHT reliefs.
For more information or advice about Inheritance Tax, please call me David Threkeld 01228 590200 or email firstname.lastname@example.orgContact David
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