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HMRC internal manual

Shares and Assets Valuation Manual

HM Revenue & Customs
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IHT Agricultural Property Relief: Occupation Rule

The test of occupation is factual.

  • A company which farms land for its own profit is in occupation of it. This includes the tied cottages of its employees or the farm manager’s house.

By an extra-statutory concession dated 13 February 1995, the condition in ss.117 and ss.169 concerning occupation for agricultural purposes is often regarded as satisfied by cottages occupied by retired farm workers or their surviving spouses if either:-

  1. the occupier is a protected tenant under certain statutory provisions, or
  2. the occupation is under a lease granted to a farm worker (for life and that of any surviving spouse) as part of his contract of employment for agricultural purposes and which has a similar effect to that of a protected tenancy.

However, occupation at a market rent by someone not otherwise working on the farm is not occupation by the farming company. For further information see Chapter 24 of the Inheritance Tax manual at IHTM24045

  • In the case of English partnerships, each partner is in occupation of the whole land farmed by the partnership.
  • In the case of Scottish partnerships, see Chapter 24 of the Inheritance Tax manual at IHTM24113
  • A company is not in occupation of a farm which is let to a tenant farmer who carries on the trade of farming on it. Casual lettings by a company (such as grazing rights for less than one year) are not regarded as destroying that company’s occupation of the land (although longer lettings would do so). If land is not “in hand”, therefore, it is important to ascertain the precise terms under which a tenant/licensee occupies the land. This means obtaining copies of any written tenancy agreement or full details of the terms of the occupation, if these were not in writing.

Prior Occupation by Controlling Shareholder - s.123(5)

A company is treated as having occupied property held at the time of transfer for any period when it was previously occupied by a person ‘’who subsequently controls the company’. The usual situation will be when a transferor incorporates a previously unincorporated farming business and transfers the farming assets including the land to the company.


X has lived in a farmhouse and farmed agricultural land in partnership 60/40 with his son Y since 1 May 1990. On 2 May 2005 they transfer the farmhouse, all farm buildings and land to a company. The shares in the company are held as to 40% by Y and 60% by X. The farm qualified for AR at that time.

On 1 April 2007 X dies, leaving his 60% interest to his other son Z. Although the company has not owned the agricultural land for 2 years, AR will be available on X’s death.

In strictness the provision does not extend to any occupation by the transferor between the acquisition of control of the company and the subsequent transfer of the land to the company. If material such a case should be referred to the Appeals Team.

For further information see Chapter 24 of the Inheritance Tax manual at IHTM24111 onwards.

  Additional Guidance: SVM150000