Holiday Accommodation For Cattle
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The recent case of McCall and Anor (Personal Representative of McClean Dec’d)
v R & C Commissioners (2008) SpC 678 (7 April 2008) highlighted the fine
division between investment and trade for inheritance tax (IHT) purposes.
Market Value of £5.8 million
The farm land owned by Mrs McClean at date of death was 33 acres and at that
date was considered to have a market value of £5.8 million and an agriculture
value of £165,000. The land was zoned for development and the difference in
market and agricultural value highlighted the importance of business property
relief (BPR) as opposed to agricultural property relief (APR) when trying to
mitigate an IHT liability on the “hope” value.
Mrs McClean inherited the farm land from her husband on his death in 1983.
The land was not farmed by Mrs McClean but Mrs McClean let the land under
conacre/agistment during the months when the grass grew and the farmer’s
livestock grazed the land. A local land agent was used to put the grazing
arrangements in place. Mrs McClean owned a house adjoining the farm land but had
not lived there for the last seven years. Mr Mitchell who was son-in-law to Mrs
McClean carried out extensive work on the farm land, e.g. fencing, repairing
walls, clearing rubbish and tending to drinking troughs.
“Holiday Accommodation for Cattle”
The argument presented on behalf of the Executors was that Mr Mitchell’s work
was not work associated solely with the letting of land but was similar to dog
boarding kennels. In this case it was argued that the cows were being cared for
by Mr Mitchell’s work, i.e. “akin to holiday accommodation for cattle”. The
Special Commissioners decided that the distinction was that Mrs McClean’s land
was used to making a living FROM (part of) it, i.e. it was used as an investment
as opposed to business where the land would be used to make (part of) a living
It was considered that Mrs McClean’s farm land was not used to create a
product or to provide any service distinct from the use of the land (other than
the provision of the water). The Special Commissioners decided that the farm
land was being used as an investment, i.e. s.105(3) IHTA 1984 applies:
“A business…[is] not relevant business property if the business…consists
wholly or mainly of…making or holding investments”.
“Eatage not parcelled up and sold over the gate”
The essence of the grazing agreement in question was to allow the grazier to
use the land for payment. The Commissioners decided that the “eatage was not
parcelled up and sold over the gate to the grazier”. It was considered that the
activities undertaken by Mr Mitchell were simply “management” activities
directly related to letting the land and the whole of the income came from that
land. It should be noted that the Executors have appealed against the decision.
What action plan does this decision direct the tax planner towards?
There have been a large number of cases in this area and there are a large
number of precedents to compare with similar situations, e.g. IRC v George
(Executors of Stedman)  STC 147. Every client situation involving letting
particularly with land values above agricultural value do point towards a
structured review for both client warnings and considered action to work towards
achieving BPR. It is understood that HMRC is planning to use this case as a
direction on farm land which is farmed through grazing agreements and they will
look closely to see if the activities are not a “service” but instead the
“management of lettings”.
Size Does Matter
The farm land in this case was zoned for development and there must have been
strong indications prior to Mrs McClean’s death that BPR would be needed to
support the claim for APR. The “tax take” on a value of £5.8 million was of
significance and those associated with Mrs McClean and the operations would have
been aware of this – i.e. there was considerable hope value. The taxpayer and
tax planner’s focus when considering BPR has to be on landholdings that have a
high value and high potential value. It is considered that “size does matter”,
i.e. the potential market value of the farm land and size of the potential “tax
take” could be considered as drivers for both review and possible changes of
structure and levels of activity.
The cynical reader might at this time point towards a somewhat collapsed
development market with problems caused by mortgage availability and the plight
of the house builder that has been the focus of much media attention but perhaps
all the more reason to use the “lull” to prepare for the recovery in property
The Importance of the Tax Planning Valuation
When the tax adviser is asked to review a future possible claim for BPR where
there is potential “hope” or “special” value such as in this case how key is the
quality of the valuation to this work? Clearly the ideal situation is for the
valuer to provide a “red book” value, i.e. a value based on the RICS code of
conduct for the current position and also the time ahead as to when the claim
for BPR might be made. This obviously has huge problems involving risk,
uncertainty and cost.
Many clients might not want to pay for the cost of the valuation. Likewise
the valuer might have concerns over the uncertainty of the planning department
and market predictions but would of course include this in full and clear detail
in their valuation. That then leads to the greatest uncertainty of all (on the
assumption there will not be a lifetime transfer) the date the BPR claim will
refer to, i.e. the date of death – that is very difficult to predict…
In the same way that a Farm Business Tenancy (FBT) does not achieve BPR on
hope value this case brings into question the tax efficiency of grazing
agreements. Perhaps there will be a more positive move towards the robust
contract farming arrangement which involve risk and far greater involvement in
the farming operation.
We await the outcome of the appeal with interest.
About the Author
Article supplied by Julie Butler F.C.A. Butler & Co, Bowland House, West
Street, Alresford, Hampshire, SO24 9AT. Tel: 01962 735544. Email;
Julie Butler F.C.A. is the author of Tax Planning for Farm and Land
Diversification ISBN: 0754517691 (1st edition) and ISBN:
0754522180 (2nd edition) and Equine Tax Planning ISBN:
0406966540. The third edition of Tax Planning For Farm and Land
Diversification is currently being written and will be published shortly.
To order a copy call Tottel Publishing on 01444 416119.
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Article Published/Sorted/Amended on Scopulus 2008-08-04 14:40:32 in Tax Articles