Common occupation, not ownership, is the key when applying the “character appropriate” test for APR

In the case of Revenue and Customs Commissioners v Joseph Nicholas Hanson (Trustee of William Hanson 1957 Settlement) (FTC/44/2012, published on 17 May 2013) the Upper Tribunal (“UT”) considered the First-tier Tribunal’s (“FTT”) decision on the availability of Agricultural Property Relief (“APR”).  It concerned whether having common occupation of agricultural land and buildings was a sufficient connection to make the farmhouse of a “character appropriate” to the land.

The key facts and consideration of the FTT’s decision were set out by Ian Maston in his 21 February article ‘Agricultural property relief – when occupation is sufficient’.

The FTT had considered technical arguments from both sides on the correct interpretation of the “character appropriate” test and the required connection between land and buildings for this purpose.  They had concluded in favour of the taxpayer noting that to meet the test the farmhouse need only be “in the same occupation” but that there was no further requirement that it is “in the same ownership as the agricultural land or pasture”.

It was this interpretation which was considered further by the UT.  They considered a number of examples of different ownership and occupation structures before concluding, in favour of the taxpayer:

Accordingly, it is right that there has to be some nexus which establishes that the agricultural land … is connected in a relevant way with the cottage, farm building or farmhouse … Given the references to occupation [in s115 IHTA 1984] … and the reference to occupation in section 117, we consider that the literal – or at least the more natural – construction is that for which the Respondent contends.

There was an acceptance on both sides that whether the “character appropriate” test was satisfied could turn on whether land farmed but not owned could be included.  The UT put this beyond doubt by noting:

We detected a hint [in HMRC’s argument] … that … the extent of the land available to support the “character appropriate” test should be restricted to the property subject to the charge … if he was making such a point, we reject it.

In summing up, the UT concluded:

We have taken account of those points [of the taxpayer] in addressing the arguments of HMRC … we do refer to what we see as the main thrust of his argument, with which we agree … that it is appropriate to … establish the reality of the farming unit.  A single farming unit is likely … to be in a single occupation.  And that is why occupation can be taken as a reliable touchstone for identifying “the property”.

The UT does, though, end on a note of caution:

We would only add that we do not decide that common occupation will always and necessarily constitute a sufficient nexus.  It may be right that there can be situations in which, although there is common occupation … there is not a sufficient

Therefore each case does still need to be considered on its own merits.  What this case undoubtedly does, though, is provide a strong argument in favour of a claim for APR where ownership and occupation are divested (which is not uncommon in many family situations).

For further information and advice on issues arising from this case please contact the TaxDesk on 0845 4900 509 and ask for Lawrence Adair.