Farmhouses and Inheritance Tax: Elephant Test holds good for Golding

Savills Rural have circulated details of their success in Golding v HMRC.  Mr Golding, an elderly smallholder, farmed 16 acres near Lichfield.  Towards the end of his life he mainly grew food for his own consumption, although he continued to make modest profits from year to year.  He died in 2007 and the executors of his estate claimed Agricultural Property Relief on the smallholding as a way to reduce the Inheritance Tax Bill on the estate.  But the taxman did not agree.

The taxman did not dispute the eligibility of the land and buildings for the relief, but denied the claim for the house.  This was a small three bedroomed house in poor condition.  Their original argument was that the small house was not of ‘character appropriate’ to the smallholding.  Later on this was extended to a claim that it was not even a ‘farmhouse’.  The technicalities here are that a ‘farmhouse’ must be of ‘character appropriate’ to qualify for Agricultural Property Relief.  It must also be occupied ‘ancillary’ to agricultural land, and there is a minimum period of ownership as well (two years in a case like this).  The latter points were not however, in dispute in this case so the argument revolved around whether the dwelling was of ‘character appropriate’ to the 16 acres of land.

It seems from Savills’ description of the case that the main argument by the taxman was based on the limited financial viability of the holding.  Earlier cases however – notably Antrobus in which Savills’ Clive Beer and mfg solicitors also acted for the claimant – confirmed the broader basis of a claim for relief on a farmhouse.  A wide range of factors must be considered, including the size of the holding in relation to the house, cropping and stocking aspects, history of the holding and the so-called ‘elephant test’ – you know a farmhouse when you see it.  The Tax Tribunal seems to have accepted the broader argument.

The plight of the elderly farmer has been a growing concern in recent cases, and this case looks as if it will be notable for the Tribunal’s acknowledgement that as farmers grow older and their output drops, the reduced scale of the farm business does not on its own exclude Agricultural Property Relief.

It’s not time to party yet, as HMRC have until mid-July to appeal but the details of this case will be required reading once they become available on the Tax Tribunal’s website, in particular for the Tribunal’s detailed reasoning, the details of the case, the evidence and how the Tribunal dealt with it.

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