Inheritance tax bills for farmers are set to rise following a Land Tribunal judgment that narrows the scope for claiming IHT relief on farmhouses.
In a win for HM Customs and Revenue, judges in a recent test case ruled that IHT relief should cover the agricultural value of a farmhouse and not its market value.
Tax at 40% can then be levied on the difference, establishing a precedent that the Revenue has been pushing for years, according to Carlton Collister, senior tax manager at Grant Thornton.
“This is the first case giving guidance,” he said.
In the recent test case brought by the heirs of Warwickshire farmer Rosemary Antrobus, the tax bill leapt by £73,600 as a result of the ruling.
The agricultural value of the house was deemed to be 30% below the market price, but in future cases, the discount would vary depending on the region and the type of property, Mr Collister added.
Although land and farm buildings will still be eligible for IHT relief, the judges also said that tax relief on the farmhouse is only available if the owner or their spouse farmed the land on a “day-to-day basis”.
That will make it harder for so-called lifestyle farmers to claim relief, said Jeremy Moody at the Central Association of Agricultural Valuers.
The comments could also affect those who leave the day-to-day running to a contract farmer and those who have scaled down their activity in recent years.
“It may now be a question of who makes the agronomy decisions,” he said.
The court’s decision is open to appeal.