This was of course a counter-productive measure by the revenue, because if a farm and company no longer exist you create unemployment and also lose the income tax from the business. So to prevent this, they made some changes. Good thinking!
Many farms and businesses will, and should, qualify for 100% agricultural property relief but you will need to be aware of the many conditions that need to be met to attract the relief.
For instance, the property on the farmland must meet certain conditions. What exactly constitutes a farmhouse is not as straightforward as you might think. In the case Rosser v IRC the Special Commissioner concluded “it must be a dwelling for the farmer from which the farm is managed”. (Rosser v IRC [2003] WTLR 1057) For a house to satisfy the conditions for agricultural property relief, it must be agricultural property and also it must have been used for the purposes of Agriculture for the relevant period.
Both of these tests can be contentious and also an ownership test will have to be satisfied.
There is an issue of whether or not the property is ‘character appropriate’. They are really getting at the question of – is it a really nice house sitting on some farmland, or is it appropriate in size content and layout in relation to the farm that it’s on? It’s a question of proportion in other words. For example a £400,000 farm, of which the house was £350,000 sitting on 4 acres would be an interesting conversation with the revenue!
There is a simple ‘elephant’ test. Would anyone recognise the property as a farmhouse if they saw it? Another question asked is, how long has the farmhouse and agricultural property been associated, and is there a history of agricultural production?
A farm cottage can also qualify for agricultural property relief, but it would need to satisfy two main conditions: One is that someone who has the required status occupies it and the other, is it of a character appropriate to the land as above?
Don’t expect agricultural property relief for derelict buildings, but for basic farm buildings you would be unlucky not to receive the relief.
Moving on from this, the property must be agricultural property and also used for agricultural purposes. What does that mean? Well apart from the above, it needs to be proven that the property is being used for the correct reasons.
Examples of acceptable usage are:
- Land set aside for permanent or rotational fallow
- The breeding and grazing of racehorses on a stud farm. This is not an agricultural purpose under general law, but is made one for the purposes of agricultural property relief
- Keeping farm animals as would be expected on a farm
- Cultivation of food for human consumption
In shorter, more meaningful terms, if you bought a farm and just had lots of land around you, to enjoy the tranquility and space and didn’t use it for agricultural purposes, you would probably fail for agricultural property relief.
There are two levels of relief for agricultural property relief. The highest is 100% and is generally achieved where: land is let on a grazing license; or the property is let on a tenancy, beginning on or after 01/09/1995 or by concession, property is let on a tenancy where vacant possession is obtainable within twenty-four months, or where the property is valued broadly at vacant possession value despite the tenancy or, lastly, where the interest of the deceased/transferor in the property immediately before the transfer, carries with it the right to vacant possession, or the right to obtain it within the next twelve months.
The lower rate of 50% applies in most other cases. So in simple terms where you own the agricultural property solely and occupy it for agricultural purposes, you would then be able to give vacant possession of the land and subsequently qualify for agricultural property relief. Simple really!
