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Inheritance Tax - Farmhouses - Dixon Wilson

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									                                                                              CHARTERED                    AC C O U N TA N T S




MUDDY GREEN WELLIES DO NOT
A FARMHOUSE MAKE – A LOOK AT
THE SPECIAL COMMISSIONER’S
DECISION IN THE McKENNA CASE
The availability of Agricultural Property      ANTROBUS ( 2 )                                    after the death of her husband, Lady Cecilia
Relief on farmhouses to save inheritance tax                                                     entered a nursing home though the house
                                               In Antrobus (2), the agricultural value of
has received a considerable amount of                                                            was kept unchanged to ‘await her return’.
                                               the property was the subject of the
attention recently. Readers will be aware                                                        She died five months after her husband.
                                               Lands Tribunal decision, but for the tax
of the Antrobus case. Recently the Special
                                               practitioner the interest lay in the Tribunal’s
Commissioners have decided the case                                                              WAS IT A FARMHOUSE?
                                               narrow construction of what may constitute
of McKenna which provides further
                                               a farmhouse in the first place. They              The first issue in the Appeal was whether
information on the Revenue’s approach to
                                               suggested that a farmhouse was not only           the house (with its gardens and ancillary
claims for Agricultural Property Relief.
                                               the place in which a farmer lived in order        buildings) was a farmhouse within the
Agricultural property is defined by section    to farm the land, but that the farmer lived       meaning of section 115 (2). It was the
115 (2) as ‘agricultural land or pasture…;     there to farm the land ‘on a day-to-day           Revenue’s case that a farmhouse is a
and also includes such cottages, farm          basis’. Thus a so-called ‘lifestyle buyer’ or     building with a particular function and it
buildings and farmhouses, together with        ‘fiscal farmer’ could not occupy such a           was therefore necessary to look at the
the land occupied with them, as are of a       house as a ‘farmhouse’.                           function the house performed in relation
character appropriate to the property’.                                                          to the agricultural land.
The property referred to is the agricultural   McKENNA
                                                                                                 Taking her cue from Antrobus (2) and other
property which is primarily the land.
                                               In the McKenna case the subject of the            cases, the Commissioner concluded that a
Legislation does not define a farmhouse,
                                               Commissioner’s deliberations was a rather         farmhouse is a dwelling for the farmer from
but the ordinary and natural meaning might
                                               faded but still splendid seven-bedroom            which the farm is managed, and that the
be that it is a dwelling for the farmer from
                                               house in Cornwall, described in its sale          farmer of the land is the person who farms
which the farm is managed.
                                               particulars as ‘an historic and substantial       it on a day-to-day basis rather than the
                                               Manor House, Listed Grade II*’,                   person who is in overall control of the
ANTROBUS ( 1 )
                                               surrounded by 110 acres of what was               agricultural business conducted on the land.
In the first Antrobus case there were set      accepted to be agricultural land.                 She also confirmed the principle that, for
out the principles which have been                                                               any property, ‘the status of the occupier is
                                               Following Mr McKenna’s retirement from
established for deciding whether, having                                                         not the test but the proper criterion is the
                                               working in London in 1978 the house
established that a particular property was                                                       purpose of the occupation of the premises’,
                                               became his main home, and when in 1984
a farmhouse, it was of a character                                                               but even here if the premises were
                                               the tenancy of the farm ended he and his
appropriate. It considered the house’s                                                           extravagantly large for that purpose the
                                               wife Lady Cecilia agreed that the running
size, content and layout; whether it was                                                         house might not qualify. The Commissioner
                                               of the farm should be carried out jointly
proportionate to the requirements of the                                                         decided that in respect of Mr McKenna, he
                                               by them, though the actual work was
farming activities; whether an educated                                                          was not the farmer, because, inter alia, the
                                               contracted out. He obtained a rates
rural layman would regard the property as                                                        farming had been contracted out so that
                                               reduction on the basis that the house was
land with a house, or a house with land;                                                         day-to-day farming activity was carried out
                                               a farmhouse. Both frequently walked the
and finally whether there was a history of                                                       by the contractor through an agent, and
                                               farm to ensure everything was being done
agricultural production associated with                                                          not by the owner.
                                               properly, and the farm records and
the house.
                                               documents were kept by them. By the late
                                               1990’s both were becoming infirm, and
                                               responsibility for running the farm gradually
                                               passed to their agent. Their green wellies
                                               stayed firmly in the cupboard. In 2003,
                                                                                                                                              �
re a) Pre-trading
ding expenditure expenditure
         OTHER MATTERS                                   The implications of McKenna seem to be
                                                         that:
         Having concluded that the house was not a
  commenced yet commenced
    Where a
mpany has notcompany has not yet commenced
         farmhouse, there was no need to look at
         the remaining matters, but ‘in case she was
                                                         �   It will be difficult to obtain relief if the
                                                             whole of the farming operation is


 it its still claim it research
    research
 hecan trade thenthecan still claim the research
         wrong’ she did look at them and expressed           contracted out. However the terms
         her views. On the ‘character appropriate’           of contract farming arrangements
         test, she looked at the value of the house in       differ enormously, and it must make


oviding the providing relief
    and relief
ment taxdevelopment taxthe providing the
         relation to other properties in the area, and       sense, where the economic case for
         also in relation to the profitability of the        contracting is compelling, to continue
         land, and concluded that it was not a               contracting but give consideration to

 development development
    research and
related to the is related to the is related to the
         property that would attract demand from             making such changes as are necessary
         a commercial farmer who had to earn a               to maximise the owner’s participation
                                         further information or w
                                                            you
                      If you would like If you would likeIffurther
         living from the land. If it were a farmhouse,       in the contract farming process.

 cipated will inanticipated will be
    trade it
ommenced isbe commenced in commenced in
         it was not ‘of a character appropriate to
                                                         �   It seems harsh, to say the least, to
         the property’ within the meaning of
                                        advice, please contact an
                                                          partners
                      advice, please contact any of our advice, p
         section 115 (2).
                                                             penalise farmers who, after many years
                                                             of farming, become infirm at the very

    due course.
         Was it occupied for the purposes of                 end of their life, and therefore fail

                                        with whom you withalrea
                                                          are or
                      with whom you are already in contact wh
         agriculture throughout the period of two
         years ending with the relevant dates of
                                                             the ‘occupied for the purposes of
                                                             agriculture’ test. Indeed, perhaps the
         death within the meaning of section 117 (a)?        outcome would have been different              If you would like further information or

                      the author:       the author:
         The Commissioner decided that neither
         Mr McKenna nor Lady Cecilia were able to         the auth
                                                             had this been the only issue against a
                                                             successful claim for relief.
                                                                                                            advice, please contact any of our partners
                                                                                                            with whom you are already in contact or
         engage in farming matters throughout that                                                          one of the authors:
                                                         It is worth remembering that if the
         period of two years by reason, it would
                                                         occupiers are in a partnership with others

                                                       jonsutton@dixonwilson.c
                                        jonsutton@dixonwilson.co.uk jonsutto
         appear, of their infirmity or absence.                                                             David Nelson
                                                         and the house is a partnership asset then,
                                                                                                            davidnelson@dixonwilson.co.uk
                                                         as a matter of law, all of the partners are
         OUR VIEW
                                                         in occupation. Also in order to secure             James Kidgell
         It is important to note that in both Antrobus   Agricultural Property Relief on tenanted           jameskidgell@dixonwilson.co.uk
         and McKenna what the Revenue were               property, that property has to be occupied
                                                                                                            Robin Oldfield
         considering were substantial historic houses    for agricultural purposes.
                                                                                                            robinoldfield@dixonwilson.co.uk
         (in poor condition) with small landholdings
                                                         The Revenue also seem to be making a

                                        July 2006                                          July 2006                                     July 200
         of 123 acres and 110 acres respectively.
                                                         point of distinguishing between those
         Both properties were sold, post death, and
                                                         whose sole or main occupation and income
         marketed as grand houses, with some land,
                                                         stream is from farming, and those with
         rather than as farmhouses. However, it
                                                         more diverse interests. The tests for what
         must be the case that whether a particular
                                                         constitutes a farmhouse sit oddly with the
         property is of a ‘character appropriate’
                                                         income tax treatment of the land owner
         depends to a significant extent on the
                                                         who contract farms as a trade, and still
         acreage of land farmed.
                                                         more oddly with a landowner who limits
         The distinction between the two cases is        his use of the land to maintenance sufficient
         that in Antrobus the farming was carried        to collect the Single Farm Payment.
         out by Mrs Antrobus, whereas in McKenna
                                                         Perhaps Antrobus and McKenna are signals

Wilson Dixon Wilson www.dixonwilson.com
     �                        � www.dixonwilson.co
                                         � ww
         a farm contractor was used through an
         agent.   �                                      of a more general change of approach, and
                                                         possible reform of the conditions to be
                                                         fulfilled. What is clear is that even for those
         19 avenue de l’Opéra
 ue de l’Opéra                                           who might not be classified as ‘lifestyle’
                                                         farmers, a pair of muddy green wellies
                                                         outside the front door is just not enough.
 aris    75001 Paris
         France
         �   Dixon Wilson
             Dixon Wilson                                �    DixonWilson
                                                              Dixon Wilson                                  �   www.dixonwilson.com
                                                                                                                www.dixonwilson.com
             Rotherwick House
             22 Chancery Lane                                 19 avenue de l’Opéra
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