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Many rural land owners were encouraged by the Government and/or their Bank to supplement their farming income through:

(a)          developing that old and possibly redundant barn for holiday or longer lets and/or

(b)          having to learn to manage without the farm labourer. Let out the old labourers cottage for similar purposes.   Neither, of course, fall obviously within the definition of “farming” for the purposes of agricultural property relief (APR) available on death

Whether these properties do or do not it has to be remembered that taxable relief is on value for agriculture not what that property might be worth on the open market.

There are two established cases although which are heavily relied upon when the let property forms part of the general business within the same management particularly where the let property or converted property was surplus. They are Farmer & Giles (Farmers Executors) v. CIR 1999 SSCD 321.  This was a real farm run and worked by father, son and two employees.  Some of the old buildings had been converted for letting some eight years before father’s death.  At the time of death letting income was significant but the farm income remained greater according to the Probate Valuation.  The Revenue agreed APR on the farm and farm business but challenged APR on the lettings.  This price was taken as a whole and looked at in the round.   It was run by a unified management and there were one set of Accounts in which both farm and letting income was included was regarded as important.

Similarly with a much bigger operation AM Brander (Earl of Balfour Personal Reps) v. RCC [2009] UK FTT 101 TC 609.  It was a similar decision.

But the problem for the small land owner is that if there is not a unified larger farm business, business property relief which might otherwise be claimed has to get over Section 105 (3) of the IHTA and the “wholly or mainly” test.  The sub-Section provides:

“(3) a business interest in a business, or shares in or securities of a Company, are not relevant business property if the business or, as the case may be, the business carried on by the Company consists wholly or mainly of one or more of the following that is to say, dealing in securities, stocks or shares, land or buildings or making or holding investments”.

Which takes us to a now well-known case of Pawson (Deceased) v. IRC.  The case involved a holiday cottage in Suffolk where HMRC refused business property relief on the grounds the use was simply the holding of property.   It was regarded as an investment.  It was this case that very much increased the provision for services well beyond an investment.  The food box, bedding and bedding changes, walks around the farm whilst increasing value could be traced back to avoiding the result of that decision.

However, although there have been many similar cases since, there may be some way forward following the case of PR’s of Graham Deceased v. RCC [2018] UKFTT 0306 (TC).  Regarded by many as an exceptional case if only because the many others which the Revenue had challenged and won.

Wise rural property owners still need to do their best to consider that unless extra services are provided the let property will not attract either agricultural property relief or business property relief.

Please get in contact if you would like further information (01548) 854878.

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