A recent Tax Tribunal decision on the eligibility of farmhouses for Agricultural Property Relief (APR) is a positive result for farmers, which has been welcomed by Strutt & Parker.

The conclusion of the First Tier Tribunal in the case of Hanson v Her Majesty's Revenue and Customs (HMRC) found in favour of the taxpayer and bolstered a wealth of recent case law on the subject which may help in other tax relief claims.

The case turned on the definition of an 'agricultural property' and the application of APR under the Inheritance Tax Act 1984 (IHTA), where agricultural property is sheltered from IHT.

It has been established in previous cases that a farmhouse is required to be "character appropriate" and must also be occupied "ancillary to agricultural land" to qualify for APR. HMRC's stance is that there must be "common occupation" and "common ownership" between the farmhouse and the land, as seen in the case of Rosser v Inland Revenue Commissioners (IRC) in 2003. Here, the IRC argued that a farmhouse could be the hub of a large farming business but it would not qualify for APR if only a small acreage was owned and occupied with the farmhouse and the majority of the land was rented.

The case of Hanson v HMRC concerned the estate of William Hanson, who died in 2002. The land in question, at Great Horwood in Buckinghamshire, had been farmed from the farmhouse for generations. William Hanson owned the farmhouse, which was occupied by his son, Joseph Hanson, with whom he jointly owned 25 acres of land. Joseph Hanson farmed 215 acres, 128 acres of which he had sole ownership. The only land in common ownership and common occupation with the farmhouse was the 25 acres part-owned by Mr Hanson and farmed by the son.

APR was originally denied on the farmhouse but Joseph Hanson appealed in his capacity as sole trustee of the trust, arguing that common occupation was the only connecting factor required between the farmhouse and the agricultural land to which it was 'character appropriate'.

The tribunal agreed, finding that the connection between the land and farmhouse need only be occupation rather than ownership and occupation.

Ross Houlden, partner in Strutt & Parker's Chester office, said: "The key point is that the farmhouse was occupied for the purpose of farming. This decision needs to be viewed with caution and within the context of the specific case but it does offer clarification and seems to represent a welcome shift in interpretation.

"While there is no guarantee all such cases will have the same outcome, these findings will be relevant and encouraging to all those claiming APR in respect of farmhouses and it helps to broaden the scope of APR which will be greeted with relief by the taxpayer."

For further advice please contact Strutt & Parker's Chester office on 01244 354888.