APR – PRs of Golding decd. v HMRC [2011] UK FTT 351

 In Tax

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The claim for Agricultural Property Relief (APR) on the farmhouse occupied by Dennis Golding is an interesting case for those advising small farmers where through age and infirmity little agricultural activity is conducted at the farm and low profits might be seen as determinative of lack of commerciality.

The facts

Before the hearing HMRC had conceded in correspondence that the house at Blue Gates Farm was a farmhouse even though they tried at the Tribunal to argue this point again they were not allowed to do so. The only point in issue before the Tribunal was whether the house at Blue Gates Farm was of a character appropriate to the farm.

Dennis Golding always wanted to be a farmer and as a result his father bought the farm for him in 1940 and transferred the title to it to Dennis in January 1965. There were stables and sheds on the farm and outbuildings too but only about 16 acres of land enhanced later by taking a lease on a further 3. The house was Dennis’s home, office and workplace. He brought up his family there and ran a modest enterprise which at one time included 600 free range chickens, 7 -10 cattle, harvested fruit off the fruit trees and grew vegetables, wheat, barley and oats.

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The position changed as the family changed. In the 1980s his daughter married and moved away; his wife died and the lease on 3 acres was not renewed. Dennis lived in the farm on his own once his son Arthur built a separate bungalow nearby and moved there in 1994.

Dennis basically managed on very low income (the profits in the years 2003/4 – 2006/7 never exceeded £1,600 per annum) from the reduced activity on the farm – basically just selling eggs from the farm gate – and on the modest inheritances he had received from his father and cousin. He never claimed any government assistance by registering the land for the Single Farm Payment.

He did however still work on the farm, repairing the dilapidated buildings, bailing hay, harvesting apples and looking after the flock of 70 chickens. He basically died shortly after bailing hay aged 81 years.

Although HMRC brought comparable evidence from other farms most were larger. The receipts from the farm represented only 25% of Dennis’ income and constituted less than the minimum wage. The farm buildings were dilapidated and needed extensive refurbishment. The expert on behalf of HMRC considered a three bedroom detached property occupied with 16.29 acres was not suited to modern farming practices; was not required to farm this acreage that the land could be sold separately to the house.

The arguments

HMRC argued on the basis of the decision in Arnander & others (PRs of McKenna decd) v HMRC [2006] STC 800 that the relevant factors in deciding whether the dwelling is of a ‘character appropriate’ are the level of farming activity and the functional requirement or otherwise of the dwelling house.

Evidence of the lack of commerciality of the poultry business was produced and this level of activity on the land did not give rise to a functional requirement for a dwelling house to serve the farming of that land.

It was submitted that the purpose of the legislation was to facilitate the continuance of farming after the death of the farmer not to provide a windfall for the beneficiaries.

The argument was that there had been no real farming activity at the property for at least a decade; which does not deny that there had been a working farm in the past but that is not relevant to the decision which was required as to whether the house was of a character appropriate at the time of Dennis’ death to the actual activity in which he was engaged.

On behalf of the estate it was argued that:

  • Dennis farmed right up to his date of death
  • He had lodged appropriate tax returns to HMRC showing the takings from the farm which they appeared to accept as business receipts
  • The land had been accepted as agricultural and the farm buildings as of a character appropriate to that land
  • It was accepted that Dennis was a farmer; that he lived in the farmhouse and that he was farming the land on a day-to-day basis.

In running through the cases it was noted that the question of ‘character appropriate’ was always a question of fact and degree and any of the factors listed in the Antrobus decision [2002] STC 468 could be relevant; none were determinative. In that case Dr Brice when considering the profitability of the venture said:

“It is accepted that the evidence about the comparables did not extend to the profitability of the farming activities but, in my view, profitability cannot be a conclusive factor.”

HMRC’s argument that the test was about functionality was disputed and reference was made to the Rosser v HMRC [2003] STC 311 decision in which the Special Commissioner said:

“The approach adopted for the application of these principals [those suggested by Dr Brice in Antrobus] is that no principal is decisive, the principles are considered to be in the round and judgement is based on the broad picture.”

It was submitted that as the house was a farmhouse and the deceased was farming the land whilst living in the farmhouse up to his death the farmhouse must be of a ‘character appropriate’ in relation to the land.

The decision

The Tribunal decided that the house was a farmhouse which was of a character appropriate to the 16 acres of land farmed with it. They even went so far as to say that although they were not being asked to decide whether or not the house was a farmhouse they would have come to that conclusion.

Much was made of the Spartan nature of the property and its lack of facilities which was convenient for Dennis as a working farmer but probably not for most of us as a house!

They acknowledged the low level of profit but confirmed Dr Brice’s view that this was not determinative; the question is ‘was the deceased farming?’ They said:

“At 80 years of age it would be unreasonable to expect that to be an extensive activity….We suspect that as farming is very much a vocational activity, farmers are prepared to forego luxuries. Farms do make losses from time to time for a variety of reasons… We do not accept that the lack of a substantial profit is detrimental to a decision that the farmhouse is ‘character appropriate’.”

Practice points

  1. The five prong test in Antrobus for establishing whether a farmhouse is of a character appropriate still holds good; however, the test is of fact and degree and no one aspect is determinative instead it all has to be looked at in the round.
  2. There was an acknowledgement that as farmers grow older so the work rate will inevitably drop which will result in reduced turnover and profit but this does not mean that their farmhouse will not qualify for APR since profitability of the business is not determinative of the property’s ‘character appropriateness’.
  3. Farmers do not aspire to live in castles apparently, and will accept a different lifestyle as a result – the Tribunal should look at ‘character appropriateness’ through their eyes.
  4. This result is more ‘subjective’ than the Arnander approach focusing on what Dennis was capable of – ‘working the farm to the best of his ability’ – and the poor condition of the house would ‘only be acceptable as a farmhouse’.
  5. The 67 years that the house had been associated with the land was probably important – it is doubtful that a recent owner on similar facts would succeed.
  6. It may yet be appealed – HMRC have until the middle of July 2011.

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