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Jenkins BPR and how the farm is owned

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Julie Butler - Expert Author

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10 October 2013

Farmland has substantially appreciated in value since 2005. Some say the values have doubled, others would estimate that they have as much as trebled as development potential has returned to drive up farmland prices. There has therefore been much activity to try and protect the value of farmland when passing this asset on to the next generation, and so there has been efforts to maximise the utilisation of Inheritance Tax (IHT) reliefs.

For the farming community, these reliefs consist mainly of the combination of Agricultural Property Relief (APR) and Business Property Relief (BPR); together with the efficient utilisation of the surviving spouse exemption and the £nil rate band.

A lot of attention has been placed on jointly owned and / or partnership assets. There has been a strong drive to ensure that where there is a farming partnership, a 100% BPR claim can be achieved on the farmland, thus avoiding any IHT liability. Areas of particular concern when trying to protect this relief have been highlighted as potential development land, cottages and diversified activities.

The restriction of 50% relief

The tax principle is simple – farm land and property that is made available to the partnership only achieves 50% BPR, and thus some saving from the burden of IHT. However, “partnership property” achieves 100% BPR, thus making this option significantly more attractive to affected parties. Opportunities for potential development land are also returning to farmers, and this can also appreciate land values. The relatively new “National Planning Policy Framework” (NPPF) has been responsible for highlighting these opportunities. Areas of land on the edges of villages or small towns now have a chance of being considered for development. Areas of land previously outside the settlement boundaries could now be included to meet the serious housing shortage, marking a significant policy shift from preceding governmental regimes.

The importance of development land

100% BPR is therefore key for farmers owning farmland with possible development land as APR is restricted to agricultural value only, and thus the extra increase in value caused by this potential will not be relived if only this relief was claimed.

Some farming families have been ensuring that their share of the agricultural land is partnership property. However, do they risk losing the property to the partnership, e.g. siblings, without their share passing to their family, e.g. spouse and children by adopting this strategy? The answer is yes, but the key to protecting this asset lies within a well written partnership agreement, where the correct balance between proprietary and beneficial interest can be achieved.

The Jenkins case

So what impact has the recent Jenkins case on clarifying these problems?

What were the facts of the case?

The Jenkins case concerned a dispute between the six siblings of the Jenkins family over the correct interpretation of their parents’ wills, following their parents’ deaths in 1995 and 2005 respectively. The problem was that the “Farming Son” refused to vacate the property on various grounds (including the terms of his father’s will, a claim to a tenancy under the Agricultural Holdings Act 1986 and proprietary estoppel), all of which failed to be upheld. He also claimed that he had a right to occupy the land by reason of a right to inherit under the Trusts of Land and Appointment of Trustees Act 1996. Matters were not helped when, after the second death, the executors allowed the farming son, who had been running the farming business for his parents (alongside his own farming business) to carry on doing so pending the administration of the wills. By August 2007, however, the executors wanted to re-possess and served notice to quit on him.

Does this raise the question of whether the executors should have allowed “farming son” to continue farming in the first place?

Under Section 12 of the Trusts of Land and Appointment of Trustees Act 1996, the farming son argued that he was entitled to occupy because:

(i) he was a beneficiary;

(ii) who was beneficially entitled;

(iii) to an interest in possession;

(iv) subject to a trust of land;

(v) the purpose of which included making the land available for his occupation; or

(vi) the land was held by trustees so as to be available.

However, as a result of the differing provisions in the parents’ wills, the Court rejected all of the above arguments. They decided that the land, being held by the executors on behalf of all six siblings each entitled to receive a 1/6th share, was in fact held ‘on trust for sale’ and was not for occupation.

The different provisions of the two wills made the interpretation of the trusts difficult for the Court. Although the provisions in the mother’s will were more supportive of the farming son’s argument, this ‘right to occupy’ only related to an undivided half share, in legal terms, and thus not the whole of the farmland. The farming son was therefore never entitled to physically occupy the whole property.

Have the farming Wills been reviewed?

This is a clear example of where the wills of the parents should have been checked to ensure that they agreed and correlated with each other. What of the “undivided half share”? Was this ever considered?  What had the parents thought of the future and who they wanted running the farm? It is fair to say that many families simply do not think of the future – the bury the head in the sand alternative becomes very attractive when compared to the seemingly complicated and time consuming will and testament process.

What the Jenkins case does demonstrate is what the Court’s likely approach might be, when dealing with complicated trust structures arising from wills in relation to jointly owned land. It also highlights the need to ensure that agricultural families consider the future occupation or sale of the farm and co-ordinate the wills of all co-owners in order to safeguard the future of the farm at a later date.

The action plan

The clear action point raised by the Jenkins case is that a detailed review of all agricultural wills is now required. What could have happened if “farming son” had been made a partner? Could the land have become partnership property and “farming son” gain control in this way?

This article raises many questions, for which there are no clear answers that satisfy every client case. The problems outlined above are identical to those being faced every day that both farming families and their advisers.  These decisions have to be considered against the background of:

•         The ageing population of farmers still owning all the land.

•         Increasing land values

•         Questions over the next generation or the “farming son” being brought into partnership without huge thought for the consequences

•         A large number of farms having no wills and no partnership agreement.

The farming industry needs to realise that all these problems exist, and properly prepare for any potential issues that badly produced wills and understanding will invariably produce.


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 2013-12-11 09:11:35 in Tax Articles

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