Another important Inheritance Tax Case - Mckenna
For the second time in approximately 12 months, a recent Inheritance tax case has looked at Agricultural Property Relief (APR) and the role of contract farming agreements. The case of The Executors of D Mckenna v HMRC (2006) although significant had a fairly unsurprising result finding in favour of the revenue.
APR was refused on the estate’s main house which was described as a substantial medieval Listed manor house. Rosteague House sat in six acres of gardens surrounded by 110 acres of farmland and 52 acres of designated costal land. The farming was carried out on a contract farming arrangement. The house had not really been used as a farmhouse since 1984.
This case failed on a number of factors namely:
1) The house was not of a “Character Appropriate to the Holding” as it was not ancillary to the land.
2) The land had been contract farmed with no trading risk to the owners, who were paid a fixed sum as part of the agreement. They had no influence over how the land was farmed and did not claim any of the subsidy payments.
3) The house had not been occupied for the purposes of agriculture for the two years proceeding death. The owners were 91 and 93 years of age when they died and had very little involvement in the running of the holding, which had been mainly carried out from their land agent’s office.
4) Some of the farm buildings were not also occupied for agricultural purposes with a livery and carpentry storage business being operated from them. Relief was however gained on the dutch barn and silo that were used by the contractor.
Matthew Allen from Banbury Rural Property Consultants Fisher German comments that “One of the important factors to come out of this case is that the land owner must retain a significant amount of control over the management of the property and must bear a trading risk so that the contracting arrangement looks appreciably different from a tenancy. Practices such as recording the minutes of management meetings may be crucial.”
For more information about this or any other Rural Property related issues contact the Banbury office of Fisher German on (01295) 271555 or visit the website at www.fishergerman.co.uk
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