Tax planning can be vital for farming families

Farming families need to plan very carefully how assets are used and how they can be shown to have been used in the business.

This follows a tax decision last week in a case which denied Inheritance Tax Relief on a bungalow which had been occupied by a farmer who fell ill and had to move to a care home.

He subsequently died and his family applied for Agricultural Property Relief on the bungalow. The First Tier Tax Tribunal decided last year in favour of this claim but the decision was reviewed by the Upper Tribunal.

The decision appears to have turned on how closely connected were the use and occupation of the bungalow with the farming activity on the property where relief was being claimed.

“This is a disappointing opinion, but not a surprising one given the law in this area,” said Carlton Collister of tax advisers Landtax.

“I understand that HMRC have been denying relief in similar cases for years, although the cases I have had have either been low value or HMRC has accepted the claim in horse trading, with relief being denied on other property.

“It is understandable that relief should be sought after the owner had been a farmer all his life, and that may be what swayed the First-tier Tribunal. It is a warning that farmers need to plan in advance to avoid this type of situation and that is difficult when there are so many other family considerations that will conflict with the tax advice.”

“It is also sad to see that the executors were not represented as they were deterred by the costs and this is why many cases with ‘better’ facts do not even reach the First-tier Tribunal, with the executors being worn down by the cost of protracted HMRC correspondence in querying grounds for reliefs being claimed.”

Typical costs to support a claim such as this could quickly run into tens of thousands of pounds, said Mr Collister.