Farmers’ inheritance tax bills will rise and many part-time or lifestyle farmers could be barred from claiming IHT relief on the farmhouse altogether, following a recent court win for HM Revenue and Customs.
Land Tribunal judges decided in a recent test case that farmers’ inheritance tax relief will only cover the agricultural value of a farmhouse and not its market value, allowing the 40% tax to be levied on the difference.
In the case brought by the heirs of Warwickshire farmer Rosemary Antrobus, the tax bill leapt by 73,600 as a result of the ruling.
The decision provided a precedent that would strengthen the taxman’s hand, said Carlton Collister, senior tax manager at Grant Thornton.
“The Revenue has been pushing this very strongly for the past five years, but this is the first case giving guidance.”
In the Antrobus case, it was ruled that the agricultural value of the house was 30% below the market price, but the discount would vary depending on the region and the type of property, he added.
Although land and farm buildings will still be eligible for IHT relief, the judges said in a further comment that the farmhouse should only qualify if the owner or their spouse farms the land on a “day-to-day basis”, or used to before retirement.
“It will influence a group of people in the City who saw buying a farm as a potential tax break,” said Mr Collister.
The Revenue would seek to use this part of the judgment, although it was not binding, he added.
The comments could also affect lifestyle farmers, those who leave the day-to-day running to a contract farmer and those who have scaled down their activity in recent years, according to Jeremy Moody at the Central Association of Agricultural Valuers.
“It may now be a question of who makes the agronomy decisions,” he said.
There may also be a small impact on land prices in some cases, although agents believed it would not be significant.
Jason Beedell of Smiths Gore said: “Some lifestyle farmers do buy farmhouses for the tax advantages, so this will have an impact on land values, but it shouldn’t be more than in the low single digits.”
The executors of the Antrobus estate have been given leave to appeal.