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HMRC internal manual

Inheritance Tax Manual

Character appropriate: Golding v HMRC [2011] UKFTT 351 (TC)

This case was heard by the First Tier Tax Tribunal in March 2011 and followed a determination by HMRC that the deceased’s farmhouse was not agricultural property in accordance with IHTA84/S115(2). HMRC argued that the house was not of a character appropriate (IHTM24050) to the agricultural land owned by the deceased. The Tribunal found in the taxpayer’s favour.

HMRC were prevented by order of the Tribunal from arguing that the house was not a ‘farmhouse’ under IHTA84/S115(2), so the case was heard on character appropriate grounds only.

Facts of the case

The deceased began his working life as a farmer. His father purchased the farm, which comprised 16.29 acres, for him in 1940 and it remained unchanged at the time of the deceased’s death in 2007. The deceased raised his family of two children from the farm and during his lifetime the deceased rented 3 acres of land from the local water company but this was given up in 1985.

The farming activity at its peak consisted of 600 free range chickens, 7 to 10 cattle, milk, wheat, barley, oats, fruit and vegetables. The farming operations reduced in 1985 and in the relevant period before his death the deceased kept 70 hens and sold eggs from the farmhouse. He had several regular customers until his death.

There were a number of specific facts which were relevant to the Tribunal’s decision:

  • HMRC accepted that the provisions of IHTA84/S117 were satisfied (IHTM24060) as evidenced by the deceased’s self assessment returns.
  • The deceased had 67 years unbroken farming history on the land.
  • The farmhouse and land had remained unchanged over that period. The house was in need of modernisation and serious repairs. The roof had failed and was held up internally and covered externally with a tarpaulin.
  • The deceased raised his family solely from the farm.
  • The deceased was declaring taxable profits from his farming activities through the self assessment system until his death.

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The decision in context

You should advise agents and taxpayers relying on this case that each case is judged on its own particular facts. It is unlikely that the facts will be the same as those of Golding in many cases and as the decision is not of binding precedent the decisions in the cases of ‘Rosser’, ‘Higginson’, ‘Dixon’, ‘Antrobus 1 and 2’ and ‘McKenna’ are still relevant.

Although the Tribunal observed in passing that it considered the deceased’s residence would have qualified as a ‘farmhouse’ the decision focussed on whether the farmhouse was of a character appropriate to the land in the estate. Where agents or taxpayers seek to use this decision to argue that a residence should qualify as a farmhouse, you should refer them to the guidance at IHTM24036, which outlines our view of what constitutes a farmhouse. You will still need to consider the decisions on what constitutes a ‘farmhouse’ for Inheritance Tax purposes.

The Tribunal found that the lack of profit was not detrimental to a decision that the farmhouse was of a character appropriate to the land and highlighted the deceased was making a profit, though relatively small.

In the High Court decision of ‘Starke’ the character appropriate test was defined as ‘proportionate in size and nature to the requirements of the farming activities conducted on the agricultural land or pasture in question.’ So, in assessing whether or not property is proportionate to the farming activities undertaken on the land it remains HMRC’s view that the income or profit of a farmer is a useful indicator of the activities undertaken, particularly in extreme cases.