APR and the farmhouse

Produced by Tolley

The following Trusts and Inheritance Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • APR and the farmhouse
  • The qualifying farmhouse
  • Agricultural value
  • The meaning of ‘character appropriate’
  • The need to retain business records
  • Ownership and occupation
  • Farmhouse owned in a limited company
  • PPR and IHT
  • The farmhouse ― practical steps

APR and the farmhouse

The qualifying farmhouse

One of the advantages of APR over BPR is the potential ability to claim IHT relief on the farmhouse. Farmhouses are entitled to APR if they are:

  1. occupied, together with land, for agricultural purposes

  2. of a character appropriate to the holding of which it forms part

IHTA 1984, s 115(2)

There are a large number of tests that have to be passed in order to satisfy these conditions.

HMRC asks on the IHT supplementary form IHT414 about the extent of farming activities carried out on the land. Once HMRC is satisfied that the land is being occupied for agricultural purposes (Box 5), it will then consider the deceased’s involvement in the agricultural operations (Box 6).

The question of whether or not the house will qualify as a farmhouse will depend on the nature of the occupier’s farming activities. The level of involvement required by the deceased has been considered in the cases of Antrobus, McKenna and Charnley. It is normal for hours worked and tasks undertaken to be included in the evidence considered.

Lloyds TSB (personal representative of Antrobus, deceased) v Inland Revenue Commissioners [2002] STC (SCD) 468

Arnander and others (executors of McKenna, deceased) v Revenue and Customs Commissioners and related appeal [2006] STC (SCD) 800

The Arnander / McKenna case, which was a farmhouse case, shows the importance of being able to prove the status of an active farmer for APR. In this case, the contract farming agreement was considered weak by HMRC and, by way of example, the deceased’s farming involvement wasn’t even mentioned in the newspaper obituary.

This contrasts with Charnley, where the deceased landowner had been far more active. His extensive involvement in supporting his tenant farmer included looking after the cattle, clearing the ditches and drains, cutting the hedges and trapping moles. His actions were akin to those of a farmer and not simply a landowner maintaining his investment. The farmhouse (and the outbuildings, which housed his machinery) was given

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