Time to review contract farming arrangements

A recent tax case before the Commissioners of HM Revenue and Customs has led professional advisers to reconsider farming contract arrangements. Such arrangements effected by a genuine farmer are not under consideration but the denial of Agricultural Property Relief (APR) at 100% for inheritance tax purposes means that all landowners using only contract farming arrangements on their farm need to be aware.

The case, ‘Executors of McKenna (deceased)’ is about the denial of APR on a farmhouse and some of the steading. Keith Hopkins of EQ Chartered Accountants in Forfar said, “On the facts, the outcome of this case is not surprising. It will provide Capital Taxes Offices and District Valuers up and down the land with additional work to examine every claim for agricultural property relief. I understand there is a single person now appointed in the Capital Taxes Office to do exactly that”.

In order for the farmhouse to be eligible for APR, the day to day running of the farm has to be conducted from the house, preferably not by a contractor or through an agent. In this particular case the landowner did not occupy the house in order to farm the land. Some of the steading was used for non agricultural purposes and was not therefore eligible. Also the farmhouse failed on the inappropriateness of its character as a farmhouse.

Mr Hopkins went on to say that, “What with the two Antrobus cases in 2005 and now this case in 2006 there is no doubt the Revenue is looking very closely at farming situations especially where contract farming is used. However if there are genuine cases, properly constructed and run then I would suggest they are still capable of leading to a satisfactory result. Nevertheless such arrangements should be reconsidered and either altered or fine tuned to demonstrate that the landowner is truly a farmer taking management decisions and using contractors for the every day work. What was said in this case will cause those in similar circumstances to review their farming contract strategy”.