By Amy Lane, senior associate in the Wills, Estate & Tax Planning team at Thomson Snell & Passmore
I may be late to the party, having only recently watched Jeremy Clarkson’s TV series Clarkson’s Farm but, as a lawyer advising on farming and the Inheritance Tax (IHT) reliefs, it did make me chuckle at points about the small things Jeremy has (some would say cleverly) done to demonstrate he is ‘farming as a farmer’ at Diddly Squat.
What is farming for the purposes of IHT? And is Jeremy doing enough for his executors to be able to claim the valuable reliefs available to farmers on his death?
IHT and farming
In a nutshell, where someone owns at death agricultural property such as:
- Agricultural land or pasture
- Woodland and buildings used in connection with the rearing of livestock or fish (which is occupied with agricultural land or pasture)
- Cottages, farm buildings and farmhouses (which are character appropriate) and occupied with the agricultural land
Then Agricultural Relief (AR) will generally be available on those assets where:
- The person who has died occupies the agricultural property (as set out above) for the purposes of agriculture for a period of two years ending with the date of the death
- The person who has died owned throughout the period of seven years before their death the agricultural property which was occupied by someone else for the purposes of agriculture
From watching Clarkson’s Farm, it’s clear how much of Jeremy’s farm is used for the purposes of agriculture. Animals are reared for their meat, sheep are used to graze the land and for lambing (who can forget the death of Wayne Rooney – the sheep!). He also grows food and keeps bees which make the bee juice in his shop.
It is also clear how much Jeremy does in his capacity as a farmer – hedge cutting, spraying, fencing, cultivating (and as Caleb commented, Jeremy’s tramlines are about as ‘straight as a roundabout’), not to mention delivering lambs, piglets and calves.
What about Jeremy’s farmhouse?
It did make me laugh when I watched a couple of episodes of Clarkson’s Farm where Jeremy (cleverly) holds farm meetings with Caleb and ‘Cheerful Charlie’ in his farm office, which appears from the show to be a part of his house.
Assuming the farm office is a part of the farmhouse (and not a separate building), where a farmhouse is occupied by the farmer who is in occupation (as set out above) of the agricultural property, the farmhouse can qualify for AR in respect of the agricultural value (which is generally about 70% of the open market value of the house, so the remaining 30% or so would be taxed at the prevailing rate of IHT, currently 40% on death).
If, however, the farm office is separate from the house, especially if it is a standalone building, there is an argument that the farm is not being run from the farmhouse and actually the separate building, which could reduce the agricultural value attributed to the house.
When determining whether the farmhouse is ‘character appropriate’ to the farm, HMRC considers matters such as:
- Is the farmhouse proportionate to the size and nature of the agricultural activities on the land?
- Would a reasonable person look at the house and think it’s the farmhouse or a house with some land?
- How long have the farmhouse and agricultural property been associated and is there a history of agricultural production?
Things that can go some way to strengthening an argument with HMRC about the farmhouse being exactly that include:
- Is the house on the farm called ‘the farmhouse’ and is there a sign to that effect?
- Are the papers relating to the farming operation held at the farmhouse? Are farm meetings held in the farm office at the farmhouse?
- Is there evidence of a farmer living at the farmhouse?
So, if Jeremy continues as he is, it is likely that the farmhouse will benefit from relief from IHT on his death for the agricultural value of the farmhouse.
What about Diddly Squat – the farm shop?
A repurposed farm shop will generally be deemed ancillary to the agricultural use of the farm, so long as the products it sells originate from the farm itself. Early on in the series, Cheerful Charlie was strict on Jeremy’s partner Lisa for selling products like tea towels, board games and coffee – none of which originated from the farm.
However, a lot of Jeremy’s products find their way into the farm shop. His hops make his infamous ‘Hawkstone’ beer, his bees make ‘bee juice’ and there’s even ‘cow juice vodka’! His burger van adjacent to the farm shop sells burgers made from the cows reared on the farm which are then slaughtered for their meat.
With careful planning, diversification projects can be done without impacting the likelihood of claiming AR on the farm, such as camping, equestrian facilities and so on, whilst increasing the farming income which is essential for the longevity of a lot of farms in today’s world, particularly with the ever-changing climate. Specialist advice should be sought about diversification projects to avoid jeopardising the farming operation for IHT purposes.
If you have any questions about the topics raised in this article, please get in touch by emailing info@ts-p.co.uk.
