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Protecting the farmhouse
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Agricultural property has enjoyed favourable consideration for inheritance tax purposes but following the recent Lands Tribunal decision in the Antrobus (2) case some of those reliefs are coming under scrutiny.
Agricultural property relief (APR) can provide 100% relief from inheritance tax for agricultural land, farmhouses and cottages providing certain conditions are fulfilled.
The greatest matter of discussion with district valuers is usually over whether or not the farmhouse is eligible for APR as it is on this part of the farm that the relief can be too easily lost and often constitutes the greater proportion of the value of the farm.
One of the requirements for a farmhouse to qualify for APR is that it should be of a character appropriate to the farm. Thus a large house is likely to be inappropriate for a 50 acre farm. This was considered in the Antrobus (1) case and the Revenue accepted that the house was of appropriate character. In the Antrobus (2) case the principal issue considered was that of agricultural value which is done by assuming a perpetual covenant prohibiting a property‚s use other than as agricultural property.
The Revenue contended that the market value of the house was in excess of agricultural value and therefore the excess should be disallowed from any APR. The tax payer argued that the agricultural value was the same as a market value. The Revenue claimed that there was a 30% difference between the market value and agricultural value and unfortunately the Tribunal agreed. The 30% deduction is often used by the district valuer as a rule of thumb comparing it to a discount on properties that are sold subject to an agricultural occupancy planning condition. However there are many instances where this percentage is not appropriate, and as has been the case in the past, it will be a major point of debate between district valuers acting for the Revenue and valuers acting for tax payers for some time to come.
The second important consequence is that in reaching their decision the Tribunal narrowed their definition as to what constituted a farmhouse. The Tribunal’s decision appears to limit the farmhouse for those occupied by working farmers. It would therefore seem that contract farming, shared farming, grazing agreements and even maintaining land under good agricultural and environmental conditions (GAEC) might jeopardise APR whereas in the past this has not been a problem. The more control that can be exercised from the farmhouse, the less likely APR will be questioned. An appeal has been lodged in respect of the Antrobus (2) case and therefore we will hear more on this important issue.
The greatest matter of discussion with district valuers is usually over whether or not the farmhouse is eligible for APR as it is on this part of the farm that the relief can be too easily lost and often constitutes the greater proportion of the value of the farm.
One of the requirements for a farmhouse to qualify for APR is that it should be of a character appropriate to the farm. Thus a large house is likely to be inappropriate for a 50 acre farm. This was considered in the Antrobus (1) case and the Revenue accepted that the house was of appropriate character. In the Antrobus (2) case the principal issue considered was that of agricultural value which is done by assuming a perpetual covenant prohibiting a property‚s use other than as agricultural property.
The Revenue contended that the market value of the house was in excess of agricultural value and therefore the excess should be disallowed from any APR. The tax payer argued that the agricultural value was the same as a market value. The Revenue claimed that there was a 30% difference between the market value and agricultural value and unfortunately the Tribunal agreed. The 30% deduction is often used by the district valuer as a rule of thumb comparing it to a discount on properties that are sold subject to an agricultural occupancy planning condition. However there are many instances where this percentage is not appropriate, and as has been the case in the past, it will be a major point of debate between district valuers acting for the Revenue and valuers acting for tax payers for some time to come.
The second important consequence is that in reaching their decision the Tribunal narrowed their definition as to what constituted a farmhouse. The Tribunal’s decision appears to limit the farmhouse for those occupied by working farmers. It would therefore seem that contract farming, shared farming, grazing agreements and even maintaining land under good agricultural and environmental conditions (GAEC) might jeopardise APR whereas in the past this has not been a problem. The more control that can be exercised from the farmhouse, the less likely APR will be questioned. An appeal has been lodged in respect of the Antrobus (2) case and therefore we will hear more on this important issue.
