HMRC internal manual

Inheritance Tax Manual

IHTM24052 - Character appropriate: How are the factors to be balanced

It is not a question of ‘how many factors have to be failed’ in any given case before a house is judged not to be of a character appropriate to the property n. It is necessary to consider all the various factors about the house and the land and come to a judgement.

Not all the factors listed at IHTM24051 will be relevant in every case and additional and different factors might be considered relevant in some cases. No one factor alone will determine the outcome and whilst some may be more relevant than others in a particular case, it is not possible to give formulaic guidelines. To make sure that we are as consistent as possible in our approach any case where you have doubts about whether the provisions of IHTA1984/S115 (2) are met or where the VOA expresses any concerns on the matter should be referred to Technical.

Examples of some common situations where the character appropriate test may be relevant are detailed below. The examples also contain details of the caseworker investigation that may be required in such cases.

  • There is a large farmhouse and/or only a small area of agricultural land. In such cases, as well as asking the District Valuer to consider if an interim agricultural report is appropriate, that is, if there is any question at all that the farmhouse is not of a character appropriate to the land, caseworkers should ask the parties to send in any photographs of the farmhouse that exist. The point of getting any available photographs is to see if the property passes the ‘elephant test’ that is, does it look like a farmhouse? This will assist Technical in reaching a decision once the interim report (IHTM24164) has been received.
  • All, or the majority of the land in the estate has been let away (IHTM24163). The caseworker must consider whether the house is a ‘farmhouse’ at all. Was it a ’dwelling for the farmer from which the farm is managed’ (Rosser v IRC SpC 368 [2003]) and if so, whether it was occupied for the purposes of agriculture (IHTM24060). Caseworkers must obtain full details of the terms of the tenancies under which the land was let, before referring the papers to the District Valuer for them to consider whether or not an interim report (IHTM24164) is required. The District Valuer will only need to consider if the farmhouse is of a character appropriate, once it has been established that the property was a ‘farmhouse’ and that it was occupied for the purposes of agriculture. Again, details of the size of the farmhouse would be useful and photographs will assist Technical in reaching a decision.
  • The land contains more than one farmhouse/cottage on which relief has been claimed. Caseworkers will need to investigate whether or not each property is occupied for the purposes of agriculture (IHTM24060). While doing this, the minimum information Technical will need to enable them to make a decision on ‘character appropriate’ will be details of the size of each property, although photographs of the properties, from all angles would be preferable. You may also need to consider whether any land, not owned by the deceased, should be considered when looking at whether or not all of the properties are of a character appropriate. Once you have this information the DV can be asked to consider whether or not an interim report (IHTM24164) is appropriate.

It is your responsibility (IHTM24161) to establish the land to be taken into account (IHTM24163) for the character appropriate (IHTM24051) test and to instruct the VOA accordingly. The VOA will consider and advise whether or not in its considered opinion the farmhouse is of character appropriate to that land .If it is not then they will issue an interim report and caseworkers must then follow the procedure set out in IHTM24164.

You should remember that it is important that each case must be judged on its own facts. In the case of ‘Golding and another v HMRC [2011] UKFTT 351 (TC)’ the First Tier Tax Tribunal held that the farmhouse was of a character appropriate to a relatively small acreage of farmland in the deceased’s estate (IHTM24053).