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Genuine Occupancy

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Julie Butler - Expert Author

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19 March 2012

In many family farms and landed estates there can be considerable moving around of properties for a large number of reasons, not least the changing sizes of families as children leave the nest and as young families start.  In times when there have been cashflow problems within the landed estate, selling residential property has helped farms survive, particularly if these qualify as the principal private residence.  This can be from moving from the original manor house to, say, the farm managerís house and selling the main house or the conversion of barns and making these principal private residences.

In addition there is great scope to pass cottages down to the next generation.  One such route is through the furnished holiday let property.  This can be passed to the next generation using the holdover relief as the furnished holiday let property qualifies for holdover relief provided it meets the right criteria, the number of days let etc.  The reality is that there is great potential to develop farms, to downsize properties and to achieve this all within the very tax efficient principal private relief domain.

One clear point is that in order to claim PPR relief the occupation of the residence must be permanent and there must be evidence of it having been permanent.  It is not enough for some temporary lodging situation and to then claim PPR.  There have been a large number of tribunal cases in the last few years on the question of PPR and they do show that HMRC have a hunger to verify that PPR claims are genuine and they do want strong evidence of permanent residence.

Many farms and landed estates have involved properties being swapped around between siblings and some quite strange ownership arrangements which seemed necessary or sensible in order to sort out family arrangements and shares of the property at the time but some decades after could be inefficient with regard to principal private residence relief.  Many would argue that as those properties are not going to be sold it will not be necessary but it is still important to ensure that the relief is there if needed.

That would then lead on to inheritance tax.  Does the ownership and residence of the farm residential property give maximum relief for inheritance tax purposes?  There has been a case which has recently changed the view with regard to ownership of the farmhouse and ownership of the land and that is the case of Hanson.  Following on from the success of Golding, the case of Joseph Nicholas Hanson as Trustee of the William Hanson 1957 Settlement (TC01791) has shown another victory for the taxpayer, although it is likely that the case will be appealed by HMRC.

The case overturns the decision in Rosser looking to the strict interpretation of section 115 IHTA 1984 for agricultural property, and deems that Agricultural Property Relief (APR) can be obtained on the farmhouse provided there is a match between the occupation of the farmhouse and the occupation of the land.

In the Hanson case the farmhouse was owned by a trust and it had been lived in by the same Mr Hanson who farmed the land surrounding the property and he also owned most of this land.  The ruling was that an APR claim could be made for an asset even when its ownership has been divorced from that of the farmland provided there is common occupation.

Again like Golding this occupation had been long-term, it had been since the 1970s and it does blatantly disagree with the decision of Rosser looking at the strict interpretation.

Action Plan

The action plan has to be for all farms and estates to review ownership of the residential property to see that the position regarding potential claims for principal private residence relief and Agricultural Property Relief are protected to the best of the understanding at the current time.  It is important at least to ascertain exactly who owns which property.


About the Author

Supplied by Julie Butler F.C.A. Butler & Co, Bennett House, The Dean, Alresford, Hampshire, SO24 9BH.  Tel: 01962 735544.  Email; j.butler@butler-co.co.uk, Website; www.butler-co.co.uk

Julie Butler F.C.A. is the author of Tax Planning for Farm and Land Diversification (Bloomsbury Professional), Equine Tax Planning ISBN: 0406966540, and Stanley: Taxation of Farmers and Landowners (LexisNexis).



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Article Published/Sorted/Amended on Scopulus 2012-07-03 11:17:05 in Tax Articles

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