The case concerned Mr Thomas Gill, a Lancashire farmer who died in 2013. He had a small farm comprising about 21 acres of permanent pasture, a farmhouse and farm buildings. Whilst he had previously farmed more actively, in the years before his death, he had allowed neighbouring farmers to graze their stock on his land although Mr Gill continued with both land and stock management functions on a day to day basis.
Agricultural Property Relief on the farmland was not in dispute, but HMRC sought to deny relief on the house and farm buildings on the basis that Mr Gill’s farming activities were insufficient to for the relief to apply. HMRC also sought to argue that Business Property Relief should not be available on Mr Gill’s farm machinery and other non-agricultural property business assets as his was “wholly or mainly” an investment business.
HMRC accepted that there was no “character appropriate” issue in respect of the house, despite the acreage being so modest. On the other hand the house was small and described as “Spartan and basic”
The First Tier Tax Tribunal heard that Mr Gill was closely involved with the livestock husbandry, as well as maintenance of the land. He ran his own farm machinery and he also maintained a small vegetable plot, the produce of which were sold via a barter system to a local shop.
The Tribunal concluded that there was no question that in the past, Mr Gill’s farming activities were such that the farmhouse would have qualified for APR. So the question for the Tribunal was whether his activities had reduced to such a level before his death that he was no longer farming to a sufficient degree to allow the house relief. The Tribunal concluded that the house had not become a mere retirement home (to use the phrase highlighted in the earlier case of Atkinson) for Mr Gill and that he remained an active farmer. The house should therefore qualify for APR.
As to BPR, the Tribunal concluded that whilst the investment component of Mr Gill’s business was not insubstantial, it was outweighed by the non-investment work in running a working farm. As a result, BPR was allowed as well.
Why is this case relevant?
This case involves a sadly familiar story. Someone who has always been a farmer, in their later years reduces their farming activities by allowing his neighbours to graze their animals and very often (as in this case) owns no livestock of his own. Upon his death, HMRC argue that he has ceased to be a farmer and seeks to disallow relief on the farmhouse.
In this case, Mr Gill was still doing enough farming to enable the Tribunal to conclude that he remained a farmer and that his house should still qualify. But no doubt his personal representatives would have preferred not to have had the expense and uncertainty of a hearing for that conclusion to be reached.
We advise farmers in cases such as this that they need to continue to be as active as possible on the farm, and ensure that those activities are evidenced in writing in the appropriate place. See our 2017 briefing 'Grazing Licences – avoiding the tax traps'.
Although there is no reference to it in the case report, about a week before the Tribunal hearing, the Office of Tax Simplification recommended that HMRC review its approach around eligibility of farmhouses for APR, in “sensitive cases”. The example given was of a farmer who needs to leave his farmhouse for medical treatment or to go into care. But cases such as Mr Gill’s might also be regarded as “sensitive”. One can only speculate whether the OTS recommendation may have bolstered the Tribunal in reaching its decision in this case.
The fact that the character appropriate test was not in dispute may suggest that HMRC is taking a more realistic view on basic farmhouses with small acreages of land. Time will tell.
HMRC may yet appeal this decision.
For further information contact Tom Hewitt.