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HMRC internal manual

Inheritance Tax Manual

HM Revenue & Customs
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Occupation of farmhouses, cottages and farm buildings: Farmhouses

A farmhouse was defined in Rosser v IRC [2003] WTLR 1057 by the Special Commissioner as ’a dwelling for the farmer from which the farm is managed.’ Unless farming operations or management activities were conducted at the property it cannot be a farmhouse.

The typical problem case is one in which the deceased had formerly been a working farmer, either on theirs own account or as a member of a partnership, had retired and continued to live in the former farmhouse. They may also have retained some nominal farming activity. The bulk of the farmland may have been given to the family, sold or let. In such circumstances you may be able to conclude that at the date of death the house is neither agricultural property nor occupied for the purposes of agriculture. This is the situation in Rosser referred to above.

You should deal with a deduction for agricultural relief against the deceased’s residence on the grounds that it is a qualifying farmhouse as follows

  • If the deceased/transferor owned farmland and let it under a grazing licence and it is not clear to what extent the land was occupied for agricultural purposes (IHTM24061), you should obtain a copy of the licence or, if it was oral, a statement of its full terms. Land let on a grazing or mowing licence for less than one year at a time will not affect the deceased’s legal occupation of the land but could affect who is in occupation for the purposes of agriculture (IHTM24071). If the deceased had no, or insufficient, obligations in respect of the land, all these being placed upon the tenant, the occupation of the farmhouse will not have been for agricultural purposes.
  • You should be aware that in recent years grazing lets are more likely to be through a farm business tenancy. (IHTM24240) This may exclude the landlord from occupation of the let land, because instead of being for the grazing period, Spring to Autumn, the farm business tenancy may be for the entire year.
  • if all the land owned by the deceased is let out to a tenant farmer under an Agricultural Holdings Act (IHTM24220) tenancy or a farm business tenancy (IHTM24240) then the deceased will not normally be considered to be in occupation of the land for agricultural purposes and therefore will not be in occupation of the farmhouse for agricultural purposes either