The Upper Tribunal (Tax and Chancery) has now published its report on the Atkinson case, mentioned briefly here at the end of last week.
The case hinged around the question of whether the late Mr Atkinson’s bungalow had been ‘occupied for the purposes of agriculture’, as required by s117 of the Inheritance Tax Act in the seven years required before his death. From the case report it is clear that Mr Atkinson acquired Abbotson Farm near Kirkby Lonsdale in Lancashire in 1957, a holding of 195 acres. By the time of his death, the farming was undertaken by a partnership consisting of Mr Atkinson himself, his son, daughter-in-law and grandson. The partnership had a tenancy of the holding from Mr Atkinson himself, and it was accepted that the tenancy was a partnership asset.
Sadly in 2002 Mr Atkinson became very ill and after a short stay in hospital he went to live in a care home. He died on 20 October 2006. His bungalow was by this time a part of the tenancy agreement, and the partnership maintained the bungalow as Mr Atkinson had last lived in it. His furniture and possessions stayed there, and two of the partners visited the property every week to look after it, collect post and so on. Exemption from Council Tax was however claimed, on the grounds that the bungalow was no longer occupied.
Section 117 of the Inheritance Tax Act means that ‘agricultural property’ must be ‘occupied for the purposes of agriculture’ in a stated period before death. The period is only two years in the case of owner-occupied property, or where there is a right to possession within a short time; but it is seven years in the case of let property. The seven year requirement applied here. The benefit of a successful claim for Agricultural Property Relief is that 50% or 100% relief can be claimed on the Agricultural Value of the asset in the deceased’s estate on death. The saving in IHT is therefore substantial on an estate which is otherwise taxed at the 40% death rate of IHT, even where the agricultural value of the asset concerned may be less than its market value.
The purpose of the Upper Tribunal is to deal with appeals against the decisions of the First Tier Tax Tribunal. The lower Tribunal had previously decided in favour of the executors’ claim that the bungalow was indeed occupied, by the partnership, for the purposes of agriculture. In reviewing this decision the Upper Tribunal has come to the opposite conclusion. In particular it has highlighted:
- The need to find an objective connection between the occupation of the bungalow and relevant agricultural activities;
- Relevant agricultural activity can be considered broadly, eg a book-keeper employed in a farm business can be regarded as engaged in agricultural activity;
- Vacating a property does not necessarily mean it is no longer occupied. Various possibilities are reviewed: the occupier away on holiday; the family of a retired or deceased worker; accommodation awaiting the arrival of a new employee; the empty farm building following a change of enterprise.
The lower tribunal had regarded the partnership’s occupation under the tenancy as important, but the upper tribunal was dismissive of this view – it had been Mr Atkinson who was in occupation. Their conclusion was that he ceased to occupy the bungalow for the purposes of agriculture when he moved to the care home with no reasonable prospect of ever returning home, even assuming that he continued to play a significant role in the partnership after that time.
In reviewing the lower decision the Upper Tribunal has accepted that Mr Atkinson continued to occupy the bungalow, but not as a dwelling and not for the purposes of agriculture. The correct approach is to look at the questions of occupation and the purposes of agriculture together as two linked questions. In the words of the judgment:
“The correct approach is to identify what does and what does not amount to a sufficient connection between the use and occupation of the property … and the agricultural activities being carried out on the agricultural property …; and to ask whether the facts give rise to a sufficient connection.”
The facts in this case did not establish a sufficient connection: the bungalow had not been occupied for the purposes of agriculture since it had become clear that Mr Atkinson would never return there to live, despite the occasional attendance of two of the partners in the business and the fact that his belongings and furniture remained in the bungalow.
Finally it should be added that the respondent executors chose not be represented in this appeal because of understandable concerns over costs. The two judges who dealt with the case do however, seem to have gone to particular trouble to consider a submission made on their behalf in arriving at their judgment. There is now a short period in which the decision can be subject to a further appeal, but this now seems unlikely.
The case report itself can be seen here, and the comments above are entirely based on that report. The Upper Tribunal does not appear to have finalised the case reference yet, as it appears at UTUK xxx (TCC).