Victory for farmers as Tax Tribunal extends Inheritance Tax relief on farmhouses


The decision is welcome news for many farmers, many of whom own a farmhouse but no longer own all of the surrounding agricultural land. Agricultural land ordinarily attracts agricultural property relief from inheritance tax and where the farmhouse on the land ‘is of a character appropriate to the property’, which means that the farmhouse is proportionate in size to the farmed land surrounding it, then the farmhouse also attracts agricultural property relief.

However, until this case HMRC had taken the view that agricultural property relief only applied to farmhouses where the attached agricultural land was owned by the same person.

It is common for the older generation of farming families to gift the working farmland to children, but to continue living in the farmhouse. Until this decision, they have have been unable to claim agricultural property relief.

David Unwin, Head of Agriculture at accounts Baker Tilly, said, ‘This case provides a welcome extension to the application of agricultural relief for many farmers who were previously excluded. It is notable that HMRC lost this case at both at the First Tier Tribunal and also, following an appeal, at the Upper Tax Tribunal. The decisions may even open up the prospect of claiming the relief retrospectively where it was previously refused.

‘Separately, this month HMRC will change the way IHT relief is applied to farmland and farming assets purchased with borrowed money, with emphasis placed on the purpose of the loan, rather than the asset used for security for the loan.
‘Recent developments, both positive and negative for farmers, have given those with farming assets quite a bit to think about from a tax perspective and they would do well to note and understand the implications of the changes.’