The Upper Tribunal in the case of Revenue & Customs Commissioners v C Atkinson and P Smith (Executors for W Atkinson) has overturned the decision of the First-tier Tribunal and denied inheritance tax agricultural property relief (APR) to a farmer who had to leave the farmhouse to enter residential care in the last four years of his life.
The decision turned on the meaning of the phrase “occupied for the purposes of agriculture” – one of the key requirements for any property to qualify for APR.
The farm covered 195 acres and included a farmhouse – where Mr Atkinson had lived from 1957 until 1966 (and which was subsequently occupied by Mr Atkinson’s son and his family, who were partners with Mr Atkinson in the farming business) – and a bungalow in which Mr Atkinson lived from 1966 until his move to the residential care home in 2002. Mr Atkinson died in 2006.
That the bungalow represented “agricultural property” was not in dispute. The First-tier Tribunal had been content that even after there was no prospect of him moving out of the residential care home, “the bungalow was still used to accommodate the diminishing needs of [Mr Atkinson]”.
The Upper tribunal took a different view, concluding:
‘Before the move, just as with an agricultural worker using a cottage on the farm as a dwelling or a farmer similarly using a farmhouse, Mr Atkinson’s use of the Bungalow can be seen as connected with the activities of the Farm so that the Bungalow would properly be seen as being occupied for the purposes of agriculture. Once Mr Atkinson had moved to the care home on a permanent basis then he ceased to need the Bungalow as his dwelling; rather, the retention of his furniture there was a convenience to him not in any way connected with the Farm or the partnership business. The fact that he remained a partner does not mean that the Bungalow continued to be occupied (if it was occupied at all) for the purposes of agriculture.’
The Upper Tribunal was at pains to explain how its conclusion was, ‘in the light of the applicable law’, the only one open to them and the decision does include a detailed attempt to define the necessary connection between a particular ‘occupation’ and ‘the purposes of agriculture’. Nevertheless, the decision seems harsh and one cannot help but feel that it would not have been impossible for a more sympathetic tribunal to have reached the contrary view.
The decision is harsh because Mr Atkinson ‘occupied the property for the purposes of agriculture’ for over 30 years and he left it because of ill health rather than choice. It seems somewhat arbitrary and, presumably contrary to the policy rationale behind APR, that the availability of the relief turned ultimately on the timing of Mr Atkinson’s death. Had he died in 2002 while still living in the bungalow no issue would have arisen.
Mr Atkinson’s PRs were not legally represented at the hearing – they had concerns about costs – and one wonders whether someone arguing for a different view might have helped. What is clear, however, is that HMRC will not hesitate to rely on changes in a person’s circumstances brought about through old age or infirmity if these changes help in denying a particular exemption or relief.
For further advice about the issues which can arise when a person’s day to day involvment in a farm or business reduces because of old age or infirmity, and in relation to inheritance tax generally call TaxDesk on 0845 4900 509 and ask for Ian Maston.