NOTE: This article was published in January 2016 and reflects the law as it stands on the date of publication and not at any later date.

You can download the original presentation in PDF format by clicking this link.

BPR and APR

• APR has priority: IHTA 1984, s. 114
  • agricultural value of agricultural property
  • agricultural land
  • cottages and farmhouses of character appropriate to property
  • occupied for purposes of agriculture
• BPR
  • relevant business property
  • interest in a business/unquoted shares in company
  • owning agricultural property
  • assets used for purposes of business

INTERACTION OF BPR and APR

• APR on agricultural value of land
  • BPR on development value
• APR on agricultural value of farmhouse, farm cottages
  • BPR on premium value if used for purposes of business
• BPR not APR on let cottages
  • not occupied for purposes of agriculture
  • if part of predominantly trading business
• BPR on assets other than land and buildings
• BPR on minority shareholding in farming company
  • IHTA 1984, s. 122
• APR on freehold reversion to let land

BPR AND LANDED ESTATE

• Mixed landed estate
  • farming activities
  • forestry
  • commercial shooting parties
  • hydro-electric plant/wind farm
  • let cottages on ASTs
  • farmhouse with office
• BPR if single business not mainly one of holding investments
  • IHTA 1984, s. 105(3)
  • 50% + non-investment

TESTS: HMRC v Brander [2010] STC 2666

• Context
  • perspective of intelligent businessman “in the round”
  • preponderance of business activities and efforts
  • not putting each activity into trading or investment bag
• Acreage/use of land (equal)
• Turnover/net profit (mainly trading)
• Capital values (investment: 1.88:1)
• Time spent (trading; 79%: 22%)
  • Time must be justifiable: Clark v HMRC [2005] WTLR 1465)
• Unitary landed estate: mainly farming, forestry, woodland

TRADING ACTIVITIES

• Farming in-hand
• Sporting activities
  • even if little income
  • vermin control
• Hydro-electric plant
  • maintained and managed
  • income from generation of electricity
  • not letting

LETTINGS

• Let properties surplus to farming requirements
  • Brander: investment, but subsidiary part of predominantly trading business
  • even though capital value much greater than trading stock
  • long-term policy to retain land
• Farmer v IRC [1999] STC (SCD) 321
  • net letting profit exceeded farming profit
  • small area
  • historical connection with farm
  • short leases consistent with non-investment

APR AND LET PROPERTY

• 100% not 50% APR where (IHTA 1984, s. 116(2); ESC F17):
  • right to vacant possession within 24 months
  • value of freehold broadly equivalent to vacant possession value
  • tenancy beginning on or after 1 Sept 1995
• No right to vacant possession within 24 months
  • Tenancy under AHA 1986
• Value of freehold not = vacant possession value
  • unless transferor and tenant closely connected
  • transferor controls farming company

LODGE/FARMHOUSE

• Lodge used for:
  • holiday lets
  • shooting parties
  • 24-hour occupation by farm manager during lambing season
  • farm office
• Need to provide “extra services” to guests
  • cooking/cleaning etc
  • B&B or hotel-like enterprise not investment
  • not excepted asset
    • small part occupied by farm office
    • rest a B&B forming minor part of business

CONVERSION OF TENANCY

• Surrender and re-grant of AHA 1986 tenancy
  • AHA 1986, s. 4(1)(g)
  • AHA 1986 applies to re-granted tenancy if written contract indicating that AHA 1986 applies
  • new tenancy will begin on or after 1 Sept 1995
  • 100% relief on freehold reversion
• No CGT charge on surrender by tenant (ESC D39)
  • if terms of new tenancy equivalent to those between unconnected parties at arm’s length and
  • terms of new tenancy not different from old (other than duration and rent)
• No SDLT charge on surrender and re-grant
  • FA 2003, Sch. 17A, para. 16
  • unless tenant a company connected with landlord (FA 2003, s. 53(1)

LIABILITIES

• Liabilities incurred directly or indirectly
• To finance acquisition of relievable property or
  • to enhance or maintain value of such property
• Set first against value of relievable property before relief
• Relief only on excess value
• Even if borrowing secured against other assets, e.g. house
• IHTA 1984, s. 162B