I am regularly asked how closely HM Revenue & Customs look at farming businesses when claims for Agricultural Property Relief (APR) or Business Property Relief (BPR) are made. A recent case heard by the First Tier Tax Tribunal involving a farmer in Lancashire gives the answer.
Thomas Gill had been a farmer all his life until he died in 2013 at the age of 79. The first point to note is that it has taken six years for Mr Gill’s Executors to sort out the amount of IHT, and it is possible that the case may still be appealed to a higher court.
The tribunal accepted that Mr Gill was an active farmer and granted APR on the farmhouse and buildings, and BPR on the equipment and other business assets. However, as mentioned above, it is possible that HMRC may appeal the decision.
One of the key points was that the executors were able to demonstrate the level of day-to-day involvement Mr Gill had in the farming activities. In particular, the owner of the cattle which grazed the land gave a statement saying that as Mr Gill was an experienced farmer he only needed to check them on an occasional basis. Had the occupier of the land been a neigbouring farmer, or the owner of the land did not have either the time or experience to look after the cattle, then the outcome may have been different.
In order for the farmhouse to qualify for APR it was essential that Mr Gill was involved in the farming activities and that the house was of a character appropriate to the land being farmed. The house was described as “spartan and basic” which probably helped to justify the APR claim. Had all the day-to-day care of the cattle been undertaken by the owner of the cattle, the APR claim would have been less likely to succeed.
There is no mention in the decision as to whether fertiliser was applied to the land, and if so, by whom. Normally this is a key consideration to identify who the farmer is. In this case Mr Gill was deemed to have carried out enough activities to be classed as the farmer.
Finally, a word about barter arrangements. In this case, Mr Gill exchanged vegetables for goods from his local shop, and also reduced his grazing charge in exchange for the grazier carrying out hedge cutting. The effect of this is to reduce the level of farming activities on paper and can make a successful claim for APR or BPR more difficult.