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HMRC internal manual

Inheritance Tax Manual

HM Revenue & Customs
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Agricultural property: Farmhouses

A residence must be either a ‘cottage’(IHTM24034) or ’farmhouse’ to come within the definition of ‘agricultural property’ in s115(2) IHTA.

A number of decisions have impacted on our view of what a -‘“farmhouse’ for the purposes of s115(2) is. Among the most important are:-

CIR v John M Whiteford and Son [1962] TR 157, in which it was stated that ’a farmhouse is the place from which the farming operations are conducted’

Rosser v IRC [2003] WTLR 1057, in which the Special Commissioner concluded that ’it must be a dwelling for the farmer from which the farm is managed.’

Lloyds TSB Banking v Peter Twiddy (Inland Revenue Capital Taxes) [DET/47/2004], in which it is stated ’a farmhouse is the chief dwelling-house attached to a farm, the house in which the farmer of the land lives. There is, we think, no dispute about the definition when it is expressed in this way. The question is: who is the farmer of the land for the purpose of the definition in section 115(2)? In our view it is the person who lives in the farmhouse in order to farm the land comprised in the farm and who farms the land on a day to day basis’ These statements lead to the conclusion that the occupant of a ’farmhouse’ must be a farmer. In other words, the person farming the land on a day to day basis. Whether a person is actually a ‘farmer’ of the land’ will depend on all the facts of a particular case. So, a person with overall control of an agricultural business is not necessarily a ‘farmer’. The key factor is to identify if the occupant of the house has a significant role in the management, or actual operations, of the farming activity being carried out on the land involved. Conversely, it is not necessarily the case that a ‘farmer’ of land is a person whose principal occupation consists of farming the land.

The test is therefore essentially a functional one. As the Special Commissioner in Arnander and others (executors of McKenna, deceased) v Revenue and Customs Commissioners [2006] STC (SCD) 800 pointed out, ‘the proper criterion is the purpose of the occupation’. Since in that case the day to day farming was undertaken solely by contractors and a land agent was responsible for the management of the land, the deceased’s residence was not a ’farmhouse’.

So, you will need to investigate in detail exactly what the occupier of the residence was doing in the way of agricultural activity in the relevant period before the deceased’s death, to be able to determine whether their residence could properly be called a ‘farmhouse’. You should be particularly careful in cases where the farmer had retired and let their land on grazing agreements.

However, a temporary cessation of activity (for example, due to ill health) will not, in itself, prevent a residence being a ‘farmhouse’ if, on the precise circumstances of the case, it can properly be considered as functionally remaining attached to the farm, along the lines described above.

For a house to qualify for agricultural relief as a farmhouse it must also satisfy two conditions. It must

  • be agricultural property, (IHTM24030) and
  • have been occupied (IHTM24070) for the purposes of agriculture (IHTM24060) for the requisite period.

Both tests can be contentious. The ownership (IHTM24101) test may also need to be satisfied.