Antrobus II has now been superseded by the McKenna case in terms of the latest guidance on HM Revenue & Customs aggressive stance on Inheritance Tax and Agricultural Property Relief. The comments resulting from this case will have particular effects for anyone other than genuine "hands-on" working farmers. This means now is the time for professionals who support land owning clients to begin assembling their thoughts on how best to protect the landowners.
As the McKenna case was heard at a special Commissioners Hearing it does not have legal precedence. It does however, represent clear persuasive evidence on the current interpretation of Inheritance Tax legislation, and in particular, the issue of agricultural property and agricultural occupancy. Unless the McKenna case is appealed against in the High Court, which Antrobus II was not, we will still have to wait for a test case to be brought forward. This would then provide the necessary legal precedence on which the best advice can be based. For the time being we will wait to see whether the Executors of the McKenna Estate make the decision to appeal.
One of the key issues in the McKenna case revolved around agricultural occupancy of a farmhouse and circumstances where a contract farming arrangement was in place. It was held that the house itself was of a character inappropriate to the holding, and it was also commented by the special Commissioners that the presence of a contract farming arrangement and the use of agents; took away the McKenna's day to day decisions in terms of the operation of the farming business. It was noted that the scenario would have been persuasive in restricting the relief purely on those circumstances alone.
The result of the McKenna case seems to be another turn of the screw against land owners and highlights that the necessity for professional bodies and supporters of the rural sector to consider carefully how they will respond in order to protect their landowners' interests. One thing certainly seems to be clear with the current legislation and its interpretation; high value farmhouses or farms using contract farming arrangements will need to reconsider their position carefully in light of recent developments.
Mike Butler, Partner of specialist farm accountants Old Mill Rural Services, warns "There is no safe option that guarantees IHT relief in the current Capital Tax climate. It's now more important than ever that landowners do all they can to check their positions in terms of the arrangements they adopt and the evidence they keep regarding their involvement in farming activity."
The final message relevant to Land Agents who are asked to dispose of rural property by Executors is that they must be aware that the character appropriate test can be influenced by the way in which the property is marketed. This was certainly the situation in the McKenna case where the property was ultimately sold on the basis of a magnificent house with land, rather than a farm to include a farmhouse. While it is understandable that Executors may wish to seek maximum value from assets it is critical that they come to the realisation that such an action may come with a 40% tax penalty!
