First-tier Tribunal (Tax)

[2010] UKFTT 108 (TC)

TC00420

Appeal number TC/2009/10941

Inheritance Tax – Exempt transfers and relief – Agricultural property relief – Farm owned by deceased and let to family farming partnership – Deceased as partner lived in bungalow on the farm until ill-health required him to move to care home – Deceased made occasional visits to bungalow and his possessions remained in it until his death – Whether throughout the seven year period ending with his death the bungalow was occupied by the deceased or another for the purposes of agriculture – Yes – IHTA 1994 section 117(b)

FIRST-TIER TRIBUNAL

TAX CHAMBER

(1)  COLIN ATKINSON

(2)  PAUL SMITH

(executors of the Will of

                          WILLIAM MASHITER ATKINSON (Decd)       Appellants

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                   REVENUE AND CUSTOMS (Inheritance Tax) Respondents

            DECISION NOTICE: full findings of fact and reasons for the decision

                                    TRIBUNAL:  SIR STEPHEN OLIVER QC

                                                             ROLAND PRESHO FCMA

Sitting in public in Carlisle on 9 February 2010

Martin Gillibrand of Oglethorpe Sturton & Gillibrand, solicitors, for the Appellants

Jonathan Davey, counsel, instructed by the general counsel for HM Revenue and customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.         This is an appeal by the executors of William Mashiter Atkinson against the decision of HMRC refusing the claim of the executors for agricultural property relief under Inheritance Tax Act 1984 section 116 on Mr Atkinson’s bungalow known as “Croftlands”.

2.         This Decision contains a full written statement of findings and reasons for purposes of rule 35(6) of the Tribunal Procedure Rules 2009. 

3.         The refusal of agricultural property relief is contained in a notice of determination which states that:

“… the deceased’s bungalow “Croftlands”, Cantsfield, Kirkby Lonsdale, Carnforth, Lancashire was not agricultural property occupied for the purposes of agriculture for purposes of Chapter II of Part V of the Inheritance Tax Act 1984.”

Overview

4.         The bungalow stands on farmland.  The land was owned by Mr Atkinson, the deceased, and let on an agricultural tenancy to a family farming partnership.  It was farmed for many years by the farming partnership.  Mr Atkinson was a partner until his death in 2006.  He lived in the bungalow until he became ill some four years before his death.  The rest of his life was spent initially in a hospital and later in a care home.  Throughout Mr Atkinson’s illness and until his death no one lived in the bungalow which remained furnished and contained his belongings.  The question for us is whether in those circumstances, which will be spelt out in more detail later, the bungalow was, throughout the seven year period ending with Mr Atkinson’s death occupied by him or by another for the purposes of agriculture.  The executors say the answer is – Yes: HMRC say – No.

The statutory background

5.         All statutory references are to Inheritance Tax Act 1984.  Section 115(2) provides:

“In this Chapter “agricultural property” means agricultural land or pasture and includes woodland and any building used in connection with the intensive rearing of livestock or fish if the woodland or building is occupied with agricultural land or pasture and the occupation is ancillary to that of the agricultural land or pasture; and also includes such cottages, farm buildings and farmhouses, together with land occupied with them, as are of a character appropriate to the property.”

Section 116(1) provides:

“Where the whole or part of the value transferred by a transfer of value is attributable to the agricultural value of agricultural property, the whole or that part of the value transferred should be treated as reduced by the appropriate percentage, but subject to the following provisions of this Chapter.”

Section 117 then provides:

“Subject to the following provisions of this Chapter, section 116 above does not apply to any agricultural property unless –

(a)       it was occupied by the transferor for the purposes of agriculture throughout the period of two years ending with the death of the transfer, or

(b)       it was owned by him throughout the period of seven years ending with that date and was throughout that period occupied (by him or another) for the purposes of agriculture.”

Factual background

6.         In 1957 Mr Atkinson acquired and began to farm Abbotsons Farm (“the Farm”).  The Farm included a farmhouse.  Overall the farm holding covered 195 acres.  On some date (unknown but before 1980) Mr Atkinson entered into partnership with his son William Alan Atkinson (“the Son”).  In 1966 the bungalow, known as Croftlands, was built on the Farm holding. 

7.         From then on Mr Atkinson lived in the bungalow.  The farmhouse was occupied by the Son and his wife Margaret Atkinson. 

8.         In 1980, Mr Atkinson, the Son and Margaret Atkinson agreed to become partners to carry on the farming business on the Farm.  By a tenancy agreement (covered by the relevant Agricultural Holdings Act) Mr Atkinson granted a tenancy of the Farm to the partners (i.e himself, the Son and Margaret Atkinson).

9.         In 1994 Gary Atkinson (Mr Atkinson’s grandson) was admitted to the partnership.  Then in 1995 the Son died and on 11 January 1996 Mr Atkinson, Margaret Atkinson and Gary Atkinson entered into a written agreement.  This recorded that they farmed the Farm as partners under the name William M Atkinson & Son.  The Partnership Agreement provided that the agricultural tenancy of the Farm was to be a partnership asset; and Mr Atkinson covenanted with the other partners that he would take all such steps to protect the position of the partners as tenants under the provisions of the Agricultural Holdings Act 1986.  Also on 11 January 1996 the tenancy of the Farm was assigned to Mr Atkinson, Margaret Atkinson and Gary Atkinson. 

10.       In 2002 Mr Atkinson became ill.  After some time in hospital he entered a care home where he stayed until his death on 20 October 2006.

11.       While Mr Atkinson was staying in the care home, Margaret Atkinson and Gary Atkinson attended the bungalow two to three times a week, collecting the post, dealing with frost and accessing the water supply system.  Mr Atkinson remained a partner until his death.  He took part in discussions relating to the Farm at least once a week.  He occasionally returned to the bungalow which remained furnished and housed his belongings.   (An inventory of the contents of the house was produced for inheritance tax purposes.)  No one else resided in the bungalow during that period and it was exempt from council tax on the basis that Mr Atkinson was resident elsewhere.

12.       It is not in dispute that the bungalow has at all times constituted agricultural property for the purposes of section 115(2) standing alone.  Nor is it in dispute that Mr Atkinson owned the bungalow.  Nor is it in dispute that Mr Atkinson remained a partner in the partnership throughout the seven years ending with his death and that as a partner he and the other two partners participated in the rights conferred by the agricultural tenancy.  The partnership accounts for the period 12 September 2006 show the value of Mr Atkinson’s interest as being £42,771 (the value of all assets being £491,138).  For that period Mr Atkinson’s share of profits was £2,305 out of total divisible profits of £77,957.

The contentions

13.       The case for the executors is that the bungalow satisfied the test in section 117(b).  It was occupied by Mr Atkinson and the other two partners, i.e. “by him or another” for the purposes of agriculture. 

14.       HMRC argue that Mr Atkinson, as transferor, cannot realistically be said to have been in occupation at the bungalow, still less could the use to which it was put during the time when Mr Atkinson was in the care home realistically be described as “for the purposes of agriculture”.  Moreover, HMRC say, the fact that the bungalow was part of the land let to the partners does not establish how, as a matter of fact, the bungalow was used during the relevant period; a tenancy governed by the Agricultural Holdings Act 1986 can, in law, include land that is not agricultural.  Thus the status of the tenancy under that Act cannot be determinative as regards its status for the purposes of section 117.

Conclusions

15.       Section 115(2) defines “agricultural property” to cover land or pasture and includes cottages, farm buildings and farmhouses as are of a character appropriate to the property.  Then section 117 states that the property in question will only qualify for relief under section 116 if (where as here subsection (b) of section 117 is relied upon) the seven year period of ownership is satisfied and the property is “occupied throughout that period (by [the owner] or another) for the purposes of agriculture”.

16.       “Occupied” is qualified by the requirement that it be “for the purposes of agriculture”.  But “for the purposes of agriculture” is not further qualified.  This no doubt reflects the wide range of activities that can constitute agriculture.  It also recognises that the class of properties defined as agricultural property by section 115(2) includes those that are directly used in the functioning of the agricultural activity, such as land and farm buildings, as well as those that are less directly employed but nonetheless provide the structure within which the agricultural activities are conducted.  Farm cottages are an example of the latter.  Their function is to accommodate people engaged in the relevant agricultural activities.  The farm cottages (such as the bungalow in the present case) must perform that function throughout the seven year period; but there is nothing in the Act that prescribes that the accommodation of such people is to be continuous.  Nor does the Act provide in what right the person in question (i.e. the person engaged in the agricultural activities) is accommodated in the cottage; it could be the farm owner occupying as such, it could be an employee accommodated under a licence or it could be a partner in the farming business accommodated by agreement between the partners.  The reference in subsection (b) of section 117 to the property in question being occupied “by him or another” indicates as much.

17.       In the present circumstances the occupation referred to in section 117(b) is the occupation of the three partners in the William M Atkinson & Son partnership as tenant under the agricultural tenancy of the Farm holding.  Throughout the period of the partnership the entire holding, the bungalow included, was occupied for the purposes of the partnership’s farming activities.  The residential buildings, i.e. Abbotson’s Farmhouse and the bungalow were used by the partnership to accommodate the partners.  For twenty-two years from the time the bungalow was built it housed Mr Atkinson.  For the last four years of Mr Atkinson’s life the impact of his illness reduced the likelihood of Mr Atkinson being able to return and live in the bungalow until it appears to have become necessary for him to stay permanently in the care home.  But he continued to participate in partnership matters and his possessions remained in the bungalow; and from time to time he visited the bungalow.  The partners chose to notify the local council that the bungalow was not lived in.  Otherwise they did nothing with the bungalow to alter the state of affairs that had subsisted throughout the partnership.

18.       Occupation by the partnership continued until Mr Atkinson’s death; it was occupation for the purposes of agriculture in the relevant sense because the bungalow was still used to accommodate the diminishing needs of the senior partner.

19.       The present circumstances are broadly the reverse of those that existed in the appeal of Harrold v Inland Revenue Commissioners [1996] STC (SCD) 195.  There a substantial farmhouse, which had been unlived in for over four years since its purchase by a partnership consisting of the deceased and his son was the subject of extensive renovations and building works.  The arrangement was for the son to occupy the farmhouse but the works were not completed by the time of the father’s death and the son had not moved in.  The Special Commissioner decided that the farmhouse was not occupied because it was not ready for use.  It could not therefore be said to have been occupied for the purposes of agriculture in applying the section 117(a) test.  Here by contrast the bungalow has been occupied by the partnership and has been used to provide accommodation for one of the partners; and nothing was done during Mr Atkinson’s life to terminate that occupation.

20.       For those reasons we allow the appeal.

21.       The Respondents have a right to apply for permission to appeal against this decision pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

SIR STEPHEN OLIVER QC

CHAMBER PRESIDENT

RELEASE DATE: 10 March 2010