Most land owners are aware of Agricultural Property Relief (APR) and could be forgiven for thinking that this means there is no risk of their Estate paying Inheritance Tax.
Unfortunately there have been cases where the HM Revenue & Customs have successfully challenged claims for APR and the rules are complicated. This is particularly true for Farmhouses.
In order for the farmhouse to qualify for APR it has to be of a character appropriate to the farm. The farm-house must be occupied for the purposes of agriculture and preferably by the farmer of the land. APR on a farm-house may be lost if the farm-house is retained on retirement but the land is let on a Farm Business Tenancy. The farmer must continue to be actively involved in the farming business.
Problems can occur when a farmer owns a large farm with a house and on retirement gives the majority of the land away but retains the “farmhouse” and a small proportion of the land. This can mean that the farm-house is no longer character appropriate to the land retained. HM Revenue & Customs are using these arguments to curb “non-farmers” who buy “lifestyle farms” and contract out farming activities or farms where there is not a full-time farmer residing in the farm house.
It is worth noting that APR is only given on the agricultural value of the house. That is the value assuming the property could only be used for agriculture. This means that often between 15% and 30% of the value will not attract relief. The more integral the farmhouse is with the yard and other farm buildings the lower the discount will be.
For further information contact Green & Co.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.