Inheritance Tax Manual

Section 9: agricultural property

The Valuation Office Agency's (VOA) technical manual relating to Inheritance Tax.

9.0 Scope of section

Part 1 of this Section deals with matters affecting the valuation for IHT purposes of agricultural properties generally. Part 2 deals with the operation of relief for agricultural property which may be available in certain circumstances in respect of transfers of value in life or on death.

Further assistance on specific technical agricultural matters is available from the SVT Policy and Professional Team.

Part 1 : Matters affecting valuation

Relevance of “agricultural property” in valuations

9.1 General

For IHT purposes “agricultural property” as defined in s.115(2) IHTA 1984 (see Part 2) is distinguished from other types of property in the following instances only:-

  • when applying agricultural relief, under ss.115-124B IHTA 1984 (see Part 2);

  • in excluding the granting of business relief in respect of the agricultural value of agricultural property which qualifies for agricultural relief - see Part 2 and Section 11;

  • in excluding from woodland relief any woodlands which are “agricultural property” (s.125(1) IHTA 1984) (see Section 10);

  • in connection with the specific provisions of s.169(1) IHTA 1984 for the valuation of farm cottages - see para 9.18 below.

Basis of valuation

9.2 General

Valuations will be subject to the normal Revenue hypothesis on open market value (see Section 7).

The question of prudent lotting is often of particular significance when dealing with agricultural properties

9.3 Prudent lotting and sporting rights

Where the prudent lotting of an agricultural estate rests upon the basis of separate farm lots, careful consideration should be given to the question of sporting rights. The value of such rights may be materially affected if it is assumed that farms are in separate ownership.

9.4 Valuation approach where part of the estate is exempt or subject to reliefs

The first task is to consider how the estate should be lotted ignoring the exemptions or reliefs. If the whole of one or more of the resulting lots is exempt it is usually not necessary to value it. If the exempt portion comprises a part of one of the lots an apportionment between exempt and non exempt parts will be necessary. There is no statutory basis for this apportionment in the IHT Legislation and a just and reasonable method should be used. This will generally be a value based apportionment based upon the decision in the case of Salts v Battersby (see para 8.61 of the CGT & Other Taxes Manual).

Occupation of agricultural property

9.5 General

The vacant possession value of agricultural land can be well in excess of its value subject to tenancy, particularly where the tenancy is protected under the Agricultural Holdings Act 1986 provisions, or let for a significant term. It is therefore important to establish the degree of security of tenure of any occupant.

A valuation for IHT may also be relevant as evidence for other taxation or for compensation purposes. It is, therefore, essential to maintain consistency of approach when determining whether vacant possession applies.

9.6 Vacant possession

Where no enforceable tenancy exists the property should be valued with vacant possession (subject to any adjustments necessary where an undivided share is transferred, see para 9.19 et seq below). Where the parties claim that an enforceable tenancy existed at the date of transfer although there is no written evidence, a strict interpretation of the evidence available should be adopted.

9.7 Subject to tenancy

In considering whether or not a tenancy exists, regard should be had to the matters covered in Practice Note 4.

9.8 Occupation by a company as agricultural tenant

A fact to bear in mind is that, in normal circumstances, if the tenant of an agricultural holding is a company, there is in all probability considerably less likelihood of the landlord eventually obtaining vacant possession than if the tenant is an individual, because a company does not die.

9.9 Occupation by partnership

In cases where the transferor is the owner or joint owner and a partnership is in occupation, HMRC should have indicated whether a tenancy exists. If this has not been done, the case papers should be returned to HMRC.

Doubt frequently exists where partnerships involve members of a family, but in considering such cases caseworkers should apply the normal criteria for the creation of a tenancy as discussed in Practice Note 4. It should be noted that under English Law (unlike Scottish Law) a partnership cannot of itself hold an interest in land, and the grant of any tenancy would have to be to one or more of the individual partners.

9.10 Failure to agree basis of occupation

Where, having regard to all the available evidence, the caseworker is unable to agree with the parties whether an occupation constitutes a tenancy he should - before an impasse is reached - refer the matter back to HMRC with a covering note setting out the points at issue and including any relevant documentation provided by the parties.

Where the caseworker considers that the basis of occupation suggested by HMRC is incorrect, e.g. in the light of additional information received, the caseworker should refer the matter back to HMRC with a covering note explaining the position.

9.11 Reserved

Agricultural tenant’s interest

9.12 General

An agricultural tenant’s interest may be the subject of a transfer of value, either in life or on death, the occasions most frequently encountered being those involving Company and Partnership tenancies.

It is essential to obtain and consider all available information concerning the tenancy, in particular the agreement with any subsequent endorsements, prior to embarking on a valuation. Such documents will normally be provided by HMRC, but in their absence the caseworker should approach the parties direct.

Valuations of agricultural tenancies can give rise to complex arguments and in any cases of difficulty guidance should be sought from SVT Policy & Professional.

Package valuations

9.13 General

The principal behind package valuations is explained at para 7.35. For IHT purposes it is the whole estate that falls to be valued. The term “package valuation” is something of a misnomer as individual units are not really being packaged together as the name implies. The estate is simply being divided into larger lots that contain more than one unit of property. The individual units in a lot can comprise either real or personal property or a mixture of the two.

9.14 Application

In an agricultural context this is most likely to apply where the deceases/transferor owned both an interest in a freehold property and a controlling shareholding in a company holding a tenancy of the same property. The hypothetical purchaser would have the opportunity to purchase both assets at the same time and would bid for them having regard to the possibility of merging the interests and obtaining vacant possession. It can also apply where the deceases/transferor owned the freehold and had control of a partnership which held a tenancy of the same property.

9.15 Authority

In Inland Revenue Commissioners v Gray (Executor of Lady Fox deceased) (Practice Note 1 Appendix F) the issue before the Court of Appeal was whether the deceased’s freehold interest should be valued together with her 92½% share in a partnership which held the tenancy.

The Court of Appeal saw this as another example of prudent lotting and decided that whether one is taking apart or putting together the principle is the same. The vendor must be supposed to have taken the course that would get the largest price for the combined holding, subject to the caveat that it does not involve undue expenditure in time and effort.

For the taxpayer it was argued that neither the Lands Tribunal nor the Special Commissioners had jurisdiction to determine the value of an asset that was partly land and partly personal property. This was rejected because the Notice of Determination had been carefully worded by the Inland Revenue to avoid any suggestion that the Lands Tribunal was being asked to determine the value of personal property.

9.16 Procedure

HMRC will in the first instance invite the parties to agree the basis and caseworkers will usually only be requested to agree valuations when this has been possible. Occasionally caseworkers may first be asked to provide informal estimates without negotiation so that HMRC may consider the implications and effect on the estate as a whole before a formal reference is made.

The reference from HMRC should be clearly marked “Package Valuation”. Caseworkers should clearly indicate in their report that a package valuation approach has been followed. Normal procedures and time limits will apply.

The caseworker may adopt a package approach without being specifically asked by HMRC to do so, but if the package includes an item that it is normally HMRC’s responsibility to value (such as shares in a company or an interest in a partnership) the caseworker must contact HMRC before doing so.

9.17 Valuation requirements

Generally, the approach will be to attach the marriage value to the freehold. The value of the freehold with marriage value will be obtained by deducting the value of the tenancy from the value of the freehold with VP. Thus, although the property is actually subject to tenancy, the value of the freehold as if with vacant possession is required.

A valuation of the tenancy will also be required and should be approached in the usual way. However, if it is an asset of the company considerations applicable in SAV cases may be relevant (see Section 16). It should be noted that it is often in the parties’ interest to maximise the value of the tenancy.

Where the deceased/transferor owned an undivided share in the freehold the value of the share will be requested. In relation to the tenancy however, the value of the entirety will often be required in order to facilitate a valuation of the shareholding or interest in the partnership.

In addition to the above the value of the freehold subject to the tenancy will often be requested by HMRC. This will be used to assess the amount of tax at stake in applying the package approach and may assist HMRC in their negotiations with the parties.

Farm cottages valuation rule

9.18 General

S.169(1) IHTA 1984 provides that in determining the value of any “agricultural property” (defined in s.115(2) IHTA 1984) “which includes cottages occupied by persons employed solely for agricultural purposes in connection with the property, no account shall be taken of any value attributable to the fact that the cottages are suitable for the residential purposes of persons not so employed.” S. 169 may therefore restrict the market value of a farm collage, often to it’s agricultural value, but it applies only if it is both “agricultural property” and occupied as described. If a farm cottage is not so occupied, it should be valued to reflect any use to which it may legally be put.

Undivided shares

9.19 General

Where agricultural property is jointly owned and/or occupied by two or more persons the interest of an individual transferor should be valued taking into account those factors which generally influence the valuation of undivided shares (see Section 18). If a husband and wife are joint owners or occupiers the related property valuation rules will most probably apply (see Section 15).

9.20 Joint owners contributing unequally in providing fixed equipment

Where HMRC are satisfied that joint owners have contributed unequally to the provision of fixed equipment they will make any adjustment necessary but may require the caseworker’s advice on the value of such equipment. This should be supplied in a separate memorandum to HMRC.

Where land, which is jointly owned by two or more persons, is occupied under an agricultural tenancy within the Agricultural Holdings Act 1986, a valuation of an undivided share should take that tenancy into account. In other cases it should be assumed that vacant possession would be available to the joint owners.

9.22-25 Reserved

Letting of agricultural property

9.26 Possible “transfer of value”

In certain circumstances the letting of agricultural property, whether on annual terms or for a fixed term, may constitute a chargeable “transfer of value”. The reason is that the VP value of agricultural property can be greater than the value subject to the tenancy (particularly if the tenancy is protected under terms equivalent to the Agricultural Holdings Act 1986 or let for a significant term) and, even in cases where a full rent is payable, the value of the transferor’s estate will usually be diminished to a degree.

9.27 No gratuitous benefit

By virtue of s.10(1) IHTA 1984 however, a disposition is not a transfer of value for IHT purposes if it is shown that it was not intended, and was not made in a transaction intended, to confer any gratuitous benefit on any person and either:-

a. that it was made in a transaction at arm’s length between unconnected persons;

or

b. that it was such as might be expected to be made in a transaction at arm’s length between unconnected persons.

Sub-section (1)(a) ensures exemption in respect of the straightforward grant of a tenancy on the open market. However in the case of a “family” tenancy where the parties are connected (defined by s.270 IHTA 1984) HMRC will have to consider whether exemption applies having regard to s.10(1)(b) as well as to s.16 IHTA 1984 (see para 9.28 below) and caseworkers may be asked to provide informal advice as to whether the terms of the tenancy are such as might have been agreed at arm’s length. In any case where neither s.10(1) nor s.16 IHTA 1984 affords exemption further advice will be required by HMRC.

Letting for “full consideration”

9.28 S.16 IHTA 1984

S.16 IHTA, (formerly s.97 FA 1981) supplements s.10(1) by stating that the grant of an agricultural tenancy shall not be a transfer of value provided that it is made for “full consideration in money or money’s worth”. It is not a substitute for s.10(1) and in any particular case it is open to the parties to argue that there has been no transfer of value by reference to either of the two provisions or indeed both. It is for HMRC to decide whether or not they apply, but advice will be sought from the VOA.

It should be noted that although this provision was first introduced by s.97 FA 1981 it was expressly made retrospective in its operation and it applies to the grant of a tenancy before as well as after the passing of FA 1981.

9.29 Advice

Caseworkers receiving any requests from HMRC on any of the matters detailed in paras 9.26-9.28 above should contact SVT Policy & Professional for further guidance.

9.30-36 Reserved

9.37 Meaning of agricultural property

The VOA’s advice as to whether the subject property was ‘agricultural property’ and used for agricultural purposes may also be sought by HMRC when referring their request for valuations. Guidance on the interpretation of agricultural property is to be found in Part 2 of this Section.

9.38-39 Reserved

Growing crops

9.40 Items to be excluded

Crops growing at the date of transfer on the land transferred are legally part of the land until severed. Nevertheless, the value to be reported should exclude the value of growing crops (i.e. produce which will normally be harvested, gathered or fed off) unless HMRC specifically request otherwise.

9.41 Items to be included

The value of permanent or temporary pasture and the value of any cultivations or unexhausted manures should be included, unless HMRC specifically request otherwise.

Where the parties have included growing crops with the value of the land HMRC will ask them to state their separate values. A note of the amount attributable will be made on the schedule before the case is referred to the VOA.

Where the caseworker is aware that the value returned by the parties includes the value of growing crops but no separate figure has been attributed, the case should be returned to HMRC so that the appropriate value may be entered on the schedule.

9.42 Query whether a sale price includes growing crops

Similarly where the caseworker is aware that the land has been sold and the sale price is relevant to the valuation then, unless the information is already available, the parties should be asked whether growing crops were included in the sale and, if so, for their estimate of their value at the date of sale.

9.43 Prior agreement

In prior agreement cases the parties should be asked to confirm that the value submitted excludes growing crops.

Milk Quotas

9.44 General

Milk Quotas were introduced on the 2 April 1984 by EEC Regulations 856/84 and 857/84, which provided that for an initial period of five years a levy would be due on quantities of milk produced beyond a specified reference quantity. The objective was to reduce overproduction.

In 2008 the EU Agriculture Council agreed that milk quotas would be abolished in 2015. In order to ease the transition quotas were increased by 1% in each of the five years from 2009. Coupled with an excess of supply over demand due to dairy farmers leaving the industry, milk quota values fell below 0.5p per litre for sale. Accordingly the low value and abolition of milk quotas has resulted in very few cases being forwarded by HMRC. Should caseworkers require advice on the valuation of milk quota they should consult SVT Policy & Professional.

9.45-49 Reserved

Potato Quotas

9.50 General

Potato quota was abolished in 1995 and therefore any references from HMRC will be very rare. If caseworkers require advice concerning the valuation of potato quota they should consult SVT Policy & Professional

Set-Aside

9.51 General

The Set-Aside Scheme was abolished by the EU in 2008. There are, however, a number of other agricultural/environmental schemes that can apply to agricultural land. Not all of these schemes are limited to farmers and not all of them require agricultural activity to be carried out on the land. If caseworkers require assistance in connection with any such schemes they should contact SVT Policy & Professional.

9.52-54 Reserved

Obtaining further information

9.55 General

In addition to valuation advice, HMRC may also request caseworkers for any available evidence to help in establishing if the requirements of s.117 IHTA, concerning occupation for the purposes of agriculture, were met by the deceased/transferor (see Part 2). Documents such as tenancy and grazing licence agreements, business accounts and descriptions of the deceased/transferor’s activity on the land are often available. Such documents are useful when advising on the requirements of s.117, and to assist with forming an opinion on the identification of agricultural property and its value. Caseworkers should therefore request copies from HMRC where the documents are relevant to a particular case and have not already been provided with the original instructions.

9.56-59 Reserved

Part 2 - Relief for Agricultural Property

Introduction

9.60 General

This part of Section 9 deals with relief for agricultural property under two headings:

  1. provisions for relief. (Paras 9.63 - 9.73).

  2. procedure. (Paras 9.74 - 9.84).

Practice Note 10 (PN 10) provides a detailed review of how property may qualify for Agricultural Relief together with advice on the assessment of agricultural value.

9.61 Statutory references

All statutory references are to the Inheritance Tax Act 1984 unless otherwise stated.

9.62 Responsibilities

HMRC have the ultimate responsibility for deciding the extent of the estate and whether or not a particular estate satisfies the requirements for relief. The role of the VOA is to provide informed professional advice on what qualifies as “agricultural property” and any consequential valuations and, if so requested, to negotiate with the taxpayers in specific cases.

Provision for relief

9.63 General

The statutory provisions for relief are contained within ss115 - 124 IHTA 1984, as amended and extended by FA’s 1986, 1987, (No 2) 1992, 1995, and 1996. Additional relief is also provided in certain Extra-Statutory Concessions (ESC) published on 13 February 1995.

The relevant texts of these provisions are reproduced in PN 10.

9.64 Transfers to which the relief may apply

The relief is available for lifetime transfers and on death, and also for settled property whether there is an interest in possession or not. It also extends to certain transfers of shares in companies which own or occupy farms. By the FA 2009, agricultural relief was extended to transfers of property in the European Economic Area.

9.65 Identification of the Property

Identification of “the property” is a matter for HMRC. Occasionally HMRC will ask for assistance in identification and guidance on this identification is included in PN 10, Part 1.

Where there is doubt about the extent of the property, whether arising from preliminary consideration of the case, raised by the parties or following an inspection, full details should be submitted to HMRC and their instructions sought before proceeding further. This procedure should also be followed where the case worker discovers property which is part of the estate but the existence of which HMRC were previously unaware.

If it is possible to continue with other aspects of the case this should be done ensuring that no opinion about the extent of the estate is expressed to the parties but, if it is not possible to continue, the case should be cancelled and the matter referred back to HMRC with a full explanation of the points of concern.

9.66 Necessary conditions to be satisfied for property to qualify for relief -

Section 117

These aspects are considered and determined by HMRC. This relief is available where:-

  • the agricultural property was occupied by the transferor for the purposes of agriculture throughout the period of two years ending with the date of the transfer (s117(a)); or

  • it was owned by him throughout the period of seven years ending with that date and was throughout that period occupied (by him or another) for the purposes of agriculture (s117(b)).

S124A provides additional conditions where a charge or increased charge arises by reason of the transferor’s death within 7 years of a lifetime transfer. In these cases relief is preserved only if the following conditions are satisfied:

i. that the original property was owned by the transferee throughout the period between the gift and the death of the transferor and was not subject to a binding contract for sale; and

ii. that the property qualified for relief at the date of gift (or, in the case of Potentially Exempt Transfers (PET), would have qualified for relief if chargeable when made); and

iii. that the property was agricultural property immediately before the death of the transferor and was occupied for agricultural purposes throughout the period in i. above.

In the case of lifetime transfers the conditions for Agricultural Relief will be judged both at the date of gift and again on the occasion of the death of the transferor within 7 years when additional tax may be payable. In the rare case where the transferee pre-deceases the transferor the conditions are tested at the death of the former.

S124B deals with the situation where agricultural property subject to a PET is sold and replaced by other property prior to death. The provisions are complicated and HMRC will give full valuation instructions in appropriate cases.

By Extra-Statutory Concession (ESC) F16 dated 13 February 1995 the Inland Revenue announced that:-

“On a transfer of agricultural property whicsh includes a cottage occupied by a retired farm employee or his/her widow(er), the condition in ss117 and 169 concerning occupation for agricultural purposes is regarded as satisfied with respect to the cottage if either:-

  • the occupier is a statutorily protected tenant, or

  • the occupation is under a lease granted to the farm employee for his/her life and that of any surviving spouse as part of the employee’s contract of employment by the landlord for agricultural purposes.”

This ESC has effect for all chargeable transfers for which tax liability had not been agreed by 13 February 1995. (See PN 10.)

Further background details of the provisions for Agricultural Relief may be found on the HMRC website at www.hmrc.gov.uk/manuals/ihtmanual, but any queries made by the parties on the application of the provisions must be referred to HMRC.

9.67 Replacement property

Complicated rules apply where the transferee has sold the original property and used the proceeds to buy other property which would qualify on death of the transferor for Agricultural Relief (s124B IHTA 1984 inserted by para 22 Sch 19 FA 1986). In these circumstances relief is not necessarily lost and HMRC may request advice on whether the replacement property qualifies as agricultural property.

9.68 The Relief

The relief for agricultural property applies only to its agricultural value, which is defined as the value of the property if the property were subject to a perpetual covenant prohibiting its use otherwise than as agricultural property (s115(3)). Different rates may apply depending upon whether the agricultural property has the benefit of vacant possession or is tenanted.

The appropriate levels of relief are set out in tabular form in PN 10, Part 3.

9.69 Interaction with Business Relief

Where the conditions for both Agricultural and Business Reliefs are satisfied only Agricultural Relief is given in respect of the agricultural value. Business Relief may be available for any additional value. For example, land with hope value or amenity value in excess of the agricultural value may attract Business Relief on that excess value.

A farmhouse that fails to qualify as “agricultural property” by not being “of a character appropriate to the property” normally will not attract Business Relief because it is not occupied primarily for the purpose of the business. However, any part of the farmhouse that was used exclusively for the purpose of the business of agriculture, or any business, may qualify in certain circumstances for Business Relief but this is a matter for HMRC to decide. The extent of the accommodation within a farmhouse that is used exclusively for the purposes of business is a question of fact and, therefore, is a matter upon which the caseworker can advise HMRC.

Caseworkers must not engage in discussions with the parties on the availability of Business Relief, unless specifically instructed to do so by HMRC, but should refer them to HMRC. (See Section 11 and, in particular, para 11.53.)

Where the caseworker suspects that Business Relief may be applicable, full details should be submitted to HMRC and their instructions sought before proceeding further. The details provided should include identifying the business property and by whom it was used and indicate why the open market value may exceed the agricultural value. Following consideration of the matter, HMRC will instruct the caseworker on what further action should be taken.

9.70 Undivided shares and Agricultural Relief

Undivided shares in property generally arise where two or more persons have a beneficial interest in the entirety of a particular interest in land (ie. an equitable tenancy in common), each being entitled to a separate share, usually held under a trust of land with the legal estate being vested in the trustees. (See Section 18 and PN 2.) In practice, this means that the owner of an undivided share has part ownership in all the property; not an exclusive ownership in a specific geographical part of the property.

When considering whether a particular cottage, set of farm buildings or a farmhouse is “of a character appropriate to the property”, the fact that the subject dwelling or building is held in undivided beneficial shares is irrelevant. The division of shares should be ignored when deciding whether or not the farmhouse etc, is of a character appropriate to the entire holding.

However, if the agricultural land to which that farmhouse etc is claimed to be of a character appropriate is held on an undivided beneficial share basis that fact is of relevance. Agricultural land in which the deceased had an undivided share interest can only be exploited with the cooperation of the other third party share owner. If that other share owner has no interest in the subject house, then less weight should be attributed to that land in supporting the claim of the house being of a character appropriate.

9.71 Undivided shares and agricultural value

The agricultural value may be required of an undivided share, or the aggregate of a number of such shares if the agricultural property is an underlying asset of a partnership. The usual considerations in valuing undivided shares (see Section 18) and partnership assets (see Section 19) will apply.

9.72 Value transferred on lifetime transfer

There can be situations where the value transferred on a lifetime transfer exceeds the value of the property transferred because of the “loss to the estate” concept (see Section 4 paras 4.9 and 4.15 et seq.) In such an instance Agricultural Relief will normally be allowed on the value transferred provided that the general conditions for relief are met. (See para 9.66 above.)

In assessing the agricultural value in such cases regard must be had not only to the interest transferred but also to that retained by the transferor which was reduced in value by the transfer. Any cases where the market value of the interest retained by the transferor exceeds its agricultural value should be referred to SVT Policy and Professional for further advice. This will apply in respect of both immediately chargeable lifetime transfers and Potentially Exempt Transfers which fail because of the death of the transferor within 7 years.

If a case arises in which a lifetime transfer of agricultural property reduces the value of retained property which does not qualify as agricultural property, it should be referred to the CEO Technical Centre for further advice.

9.73 Partnership property assets

Where agricultural property comprises a partnership asset and Agricultural Relief is applicable, the entirety value of the partnership property should be reported, indicating the agricultural value of the aggregate of the individual shares held by the partners.

Procedure

9.74 Reference of cases

References from HMRC will be made in electronic format via the Nottingham Initial Appraisal Unit. All formal and second-stage scrutiny cases are to be undertaken entirely within EDRM. The reference will comprise a valuation instruction sheet together with any further documents and emails required. The following matters may be referred to:

  1. A statement that the provisions of Section 117 appear to be satisfied (see para 9.75).

  2. A request for information where there is doubt as to the application of Section 117 (see para 9.76).

  3. A request to ascertain whether all parts of all items satisfy Section 115(2) (see para 9.77).

  4. An indication of the items upon which Agricultural Relief is potentially due (see paras 9.82 & 9.83).

  5. Any further information that may be relevant to the consideration of the particular case.

Cases involving Agricultural Relief can be complex and, should the case worker feel that the instructions received are deficient, HMRC should be requested to clarify them before the valuation proceeds. In the event of difficulty in this aspect, caseworkers should contact SVT Policy and Professional for assistance.

9.75 Occupation for the purposes of Agriculture - Section 117

It is the sole responsibility of HMRC to decide whether or not Section 117 is satisfied.

A statement that the provisions of Section 117 appear to be satisfied is only an indication that HMRC is, prima facie, satisfied that there was an occupation for the purposes of agriculture. It does NOT mean that HMRC considers that Section 115(2) has been satisfied.

It should be borne in mind that HMRC do not normally notify the parties that they accept, prima facie, Section 117 is satisfied before they refer the case to the VOA. Therefore, if later evidence emerges that suggests Section 117 is not satisfied, HMRC could deny the relief. Caseworkers must avoid giving the impression that Agricultural Relief will be granted. Discussions with the parties as to whether or not the property was occupied for the purposes of agriculture or whether Agricultural Relief will be available should be avoided.

Care must be taken to ensure that there is no unintentional prejudice of HMRC’s position as a consequence of negotiations and any exchanges of correspondence.

9.76 Doubts on the application of Section 117

  • When considering whether s117 has been satisfied HMRC may seek confirmation of the facts regarding occupation for the purposes of agriculture from the caseworker and/or a request that s115(2) be considered before they come to a decision.

  • The caseworker, from inspection, local knowledge, or a claim by the parties, may have doubts as to whether or not part, or the whole, of the property was occupied for the purposes of agriculture. In such cases HMRC should be informed immediately. The case should remain open pending receipt of advice but no further contact should be made with the parties.

9.77 Identification of Agricultural Property - Section 115(2)

Full advice on the application of these provisions is contained within Practice Note 10.

In correspondence with the taxpayers, when considering whether a particular cottage, set of farm buildings or farmhouse is “of a character appropriate to the property”, the caseworker should specify the extent of the land within the transferor/deceased’s estate to which regard is being had. The extent of the land will be limited to that land where there is a unity or identity of occupation between it and the dwellings and/or farm buildings.

As soon as it becomes apparent that there is no consensus as to the extent of the property within the estate to which one may have regard for character appropriate purposes, the caseworker should inform HMRC and ask for further instructions.

If, having established the extent of the “agricultural property”( ie. the “agricultural land or pasture”), the caseworker considers that the particular cottages, farm buildings and farmhouse on which relief have been claimed are not of a character appropriate to that property, HMRC should be advised, by means of an Initial Agricultural Relief Report (see para.9.78 below).

9.78 Initial Agricultural Relief Report

On receipt of a reference from HMRC which indicates that a claim for Agricultural Relief has been made, caseworkers should inspect the property and then consider the question of which land and buildings, if any, qualify as ‘agricultural property’.

If, following inspection and making any necessary enquiries, the caseworker is satisfied that all the land and buildings in respect of which Agricultural Relief has been claimed prima facie qualify as ‘agricultural property’ then the case should be progressed in accordance with the normal case procedures.

If, following inspection and making any necessary enquiries, the caseworker considers that any of the land and buildings in respect of which Agricultural Relief is claimed do not qualify as ‘agricultural property’ then an ‘Initial Agricultural Relief Report’ report should be sent to the HMRC . The Initial Agricultural Relief Report should contain the information listed in the standard report proforma available on EDRM (Template IHT 46). At this point there should be no further contact with the parties until further instructions are received from HMRC. However, if the case includes other properties in respect of which Agricultural Relief is not being claimed then the caseworker should proceed with the valuations of those properties in accordance with normal procedures.

Caseworkers should aim to issue the Initial Agricultural Relief Report to HMRC within 8 weeks of receipt of the case.

If caseworkers require assistance with the question of which land and buildings qualify as ‘agricultural property’ under S115(2), they should contact SVT Policy & Professional.

9.79 Contact with the parties

Before referring the case to the VOA, HMRC will advise the parties that they are seeking a report from the VOA and that the VOA caseworker may contact them to arrange an inspection. When contacting the parties to arrange an inspection, or during the inspection itself, caseworkers should not enter into any discussions on the question of whether all or any part of the property qualifies for Agricultural Relief. If asked, caseworkers should explain that at this stage they have been requested to provide an initial report on which land and buildings qualify as ‘agricultural property’ and that HMRC will be in touch in due course after considering the report.

If further information is required before the caseworker can complete the Initial Agricultural Relief Report then this should be sought from the parties. The usual procedures regarding requests for further information, as set out in the IHT Manual, paragraphs 27.21 - 27.22, should be followed.

9.80 Action by HMRC on receipt of the Initial AR Report

On receipt of the Initial Agricultural Relief Report the HMRC caseworker will refer the case to their Technical Group (TG), who will review the case and decide whether or not they wish to dispute the claim for Agricultural Relief.

If HMRC decide that they do not wish to dispute the claim for Agricultural Relief (and that is the only matter on which they need advice from the VOA) then they will settle the case on tax grounds, without prejudice to the question of whether any dwellings or other buildings qualify as agricultural property. HMRC will then advise the VOA caseworker that no further action is required and the case may be treated as reported.

If HMRC decide that they do wish to dispute the claim for Agricultural Relief (or, although they decide that they do not wish to dispute the Agricultural Relief claim, there are other valuations or apportionments on which they need advice) they will issue further instructions to the VOA setting out exactly what they require. This will include, where relevant, HMRC asking the VOA caseworker to put their opinion to the parties.

If the parties are unwilling to accept the VOA’s opinion HMRC will normally request the caseworker to provide a Defendable on Appeal (DOA) report on the question of whether the dwelling or other buildings qualify as agricultural property. Should HMRC request a DOA report, the caseworker should proceed in accordance with Section 27, paragraphs 27.47- 27.48.

If an Initial Agricultural Relief Report has been sent to HMRC and nothing further has been heard from them within 3 months of the report being dispatched, the case can be closed, providing the only issue preventing conclusion of the case is the question of the extent of the qualifying agricultural property (i.e. the caseworker has agreed the valuations of any other properties in the estate). The caseworker should notify HMRC using the standard letter available on EDRM (Template IHT 47).

9.81 100% relief cases where Section 115(3) does not apply

HMRC will require values to be reported only when IHT is going to be charged. Where there is qualifying “agricultural property” entitled to 100% relief and there is no difference between the agricultural value and the open market value, the caseworker should not become involved in negotiations over the values or report values of qualifying agricultural property to HMRC.

If it is necessary to notify the parties of opinions of value for any other properties in the estate it is not appropriate to put opinions of value to the parties in respect of those properties where IHT is not likely to be payable. In any reference to such property it should be stated that Agricultural Relief at 100% has been claimed by the parties and the caseworker should simply express the opinion that the agricultural value is equal to the open market value.

9.82 Less than 100% relief cases where Section 115(3) does not apply

Where the level of relief is less than 100%, the value transferred and the agricultural value of the qualifying “agricultural property” must be reported. The value transferred should be determined as if agricultural relief did not apply.

9.83 Exclusion of value arising from any non-agricultural uses - Section 115(3)

Where qualifying “agricultural property” has an open market value in excess of its agricultural value under s115(3), for instance, the whole or part of it may have hope value arising out of development potential or change of use, that excess value will not attract Agricultural Relief. (See PN 10, Part 2.) However, that excess value may possibly attract Business Relief and, in these circumstances, reference should be made to para 9.69 above, as agreement of values may not be necessary.

9.84 No prior agreement

The VOA is not authorised to prior agree the values of items of “agricultural property” where the parties indicate an intention to claim relief.