Farmer v IRC
| Jurisdiction | England & Wales |
| Judgment Date | 09 September 1999 |
| Date | 09 September 1999 |
| Court | Special Commissioners (UK) |
special commissioners decision
DR A N BRICE (SPECIAL COMMISSIONER)
Inheritance tax - Relief for relevant business property - Deceased owned farming estate and letting some buildings and land to tenants - Whether business consisted mainly of making or holding investments -Inheritance Tax Act 1984 section 103 section 104 section 105 section 114Inheritance Tax Act 1984 ss. 103, 104, 105, 114
DR A N BRICE:
1. Mr A B Farmer and Mr C D E Giles (the Appellants), the executors of Frederick Farmer deceased (the deceased), appeal against a Notice of Determination dated 30 April 1998 that the business known as Home Farm, which formed part of the estate of the deceased at his death on 17 February 1997, consisted mainly of making or holding investments within the meaning of Inheritance Tax Act 1984 section 105 subsec-or-para (3)section 105(3) of the Inheritance Tax Act 1984 (the 1984 Act) and so was not relevant business property for the purposes of Inheritance Tax Act 1984 section 104section 104 of that Act.
2. Inheritance Tax Act 1984 section 1Section 1 of the 1984 Act provides that inheritance tax shall be charged on the value transferred by a chargeable transfer and Inheritance Tax Act 1984 section 2 subsec-or-para (1)section 2(1) provides that a chargeable transfer is a transfer of value which is made by an individual which is not an exempt transfer. It was not argued in this appeal that there had been an exempt transfer. Inheritance Tax Act 1984 section 4Section 4 provides that, on the death of any person, tax shall be charged as if, immediately before his death, he had made a transfer of value and the value transferred by it had been equal to the value of his estate immediately before his death.
3. Inheritance Tax Act 1984 part VChapter I of Part Vof the 1984 Act (Inheritance Tax Act 1984 section 103sections 103 to 114) gives relief for relevant business property by providing for a percentage reduction in the value transferred. At the date of the death of the deceased the relevant parts of Inheritance Tax Act 1984 section 103 section 104 section 105 section 110 section 114sections 103, 104, 105, 110 and 114provided:
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103(3) In this Chapter "business" includes a business carried on in the exercise of a profession or vocation, but does not include a business carried on otherwise than for gain.
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104(1) Where the whole or part of the value transferred by a transfer of value is attributable to the value of any relevant business property, the whole or that part of the value transferred shall be treated as reduced-
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(a) in the case of property falling within Inheritance Tax Act 1984 section 105 subsec-or-para (1)section 105(1)(a).... below by 100 per cent;....
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105(1) Subject to the following provisions of this section.... in this Chapter "relevant business property" means, in relation to any transfer of value,-
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(a) property consisting of a business or interest in a business;....
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(3) A business or interest in a business.... are not relevant business property if the business.... consists wholly or mainly of one or more of the following, that is to say, dealing in securities, stocks or shares, land or buildings or making or holding investments.
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110 For the purposes of this Chapter-
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(a) the value of a business or of an interest in a business shall be taken to be its net value;
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(b) the net value of a business is the value of the assets used in the business (including goodwill) reduced by the aggregate amount of any liabilities incurred for the purposes of the business;....
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114(1) Where any part of the value transferred by a transfer of value is reduced under Chapter II of this Part of this Act by reference to the agricultural value of any property.... such part of the value transferred as is.... so reduced under that Chapter shall not be reduced under this Chapter.
4. Inheritance Tax Act 1984 part VChapter II of Part V of the 1984 Act (Inheritance Tax Act 1984 section 115sections 115 to 124) gives relief for agricultural property by providing for a percentage reduction in the value transferred.
5. At the date of his death the deceased owned the freehold of Home Farm at which he carried on a farming business; he also let properties at Home Farm which were surplus to the requirements of the farm. The Inland Revenue accepted that the business carried on by the deceased did not consist wholly of making or holding investments but argued that it did consist mainly of making or holding investments with the result that relief for relevant business property was excluded byInheritance Tax Act 1984 section 105 subsec-or-para (3)section 105(3). The Appellants accepted, on the authority of Martin and Another (Executors of Moore deceased) v Inland Revenue Commissioners [1995] STC (SCD) 5, that the letting of property consisted of making and holding investments but they argued that the business carried on by the deceased consisted mainly of farming with the result that the relief given by Inheritance Tax Act 1984 section 104 subsec-or-para (1)section 104(1)(a) applied and was not excluded by Inheritance Tax Act 1984 section 105 subsec-or-para (3)section 105(3).
6. Accordingly, the issue for determination in the appeal was whether the business carried on by the deceased consisted mainly of farming (as argued by the Appellants) or mainly of making or holding investments (as argued by the Inland Revenue).
7. The net value of the business, as referred to in Inheritance Tax Act 1984 section 110section 110, had not been formally agreed and the parties requested a decision in principle. The evidence
8. A bundle of documents was produced by the Appellants. The bundle included copies of the accounts of the business for the seven years ending on 31 December 1989 to 31 December 1995 inclusive and for the period from 1 January 1996 to 17 February 1997 (the date of death of the deceased). The bundle also included a plan of Home Farm. In addition, a large framed aerial photograph of Home Farm was produced at the hearing by Mr Andrew Blair Farmer. Oral evidence was given on behalf of the Appellants by Mr Andrew Blair Farmer, the son of the deceased and one of his executors, and by Mr Gerard Hanley Carter, the Farm
9. A bundle of documents was produced by the Inland Revenue.
10. From the evidence before me I find the following facts.
11. In about 1969 the deceased purchased the freehold of Home Farm. At that time the deceased was about sixty years old and had already succeeded in a number of other businesses. He continued to be involved with at least one other business, a countryside park, but no business other than that carried on at Home Farm was in issue in the present appeal.
12. Home Farm had a total area of about 449 acres comprising:
Arable land 274 acres
Grassland 60 acres
Farmhouse, farm buildings, their curtilages and in land lakes and tracks 9 acres
Woodland 98 acres
Rented properties and their curtilages and tracks 8 acres
Total 449 acres
13. The area of Home Farm remained unchanged during the eight years prior to the death of the deceased. At the time of its purchase by the deceased, Home Farm had the benefit of a planning permission for a dwellinghouse and the deceased subsequently built the dwellinghouse.
14. The deceased managed Home Farm on a business-like basis. He instructed a firm of agricultural consultants and had regular meetings with them. Representatives of the agricultural consultants visited the farm and looked at the crops and machinery. The deceased had a business plan and budgets were produced to monitor profitability; he was also registered for value added tax. The deceased liked his farm to be well equipped with machinery, which was maintained to a high standard and replaced regularly. He also let out any buildings which were not required for use by the farm. He treated the whole of Home Farm as a single business of which he was the sole proprietor. He operated one bank account into which all receipts were paid.
15. Each year a firm of chartered accountants prepared a "Balance Sheet and Trading and Profit and Loss Account" for "F Farmer Esquire trading as Home Farm." These were unaudited accounts compiled from records, information and explanations supplied to the chartered accountants. They related to the single business which included the farm and the lettings. In this decision they are referred to as "the business accounts".
16. Home Farm is on sand and so needs treatment to make it productive as a farm. It is, however, good for root crops. At the relevant time the main crop was wheat but some root crops (potatoes and carrots) were grown as well. In evidence Mr Carter said that one-fifth was potatoes from which I take it that one-fifth of the acreage which was farmed was used to grow potatoes. Because yields were low the farm aimed at the quality market.
17. Although Home Farm employed a number of employees in earlier years, by 1989 there were only two full-time employees, namely a farm manager and an assistant farm manager. Mr Carter was appointed as farm manager as from 10 April 1989. The terms of his appointment were set out in a letter to him from the agricultural consultants which said that, in addition to his salary, he would be paid a percentage of the farm profits which included the estate rentals. An assistant farm manager was appointed in 1992 on similar terms. Casual labour was employed for seasonal tasks such as bagging and grading potatoes and for estate maintenance work such as fencing. In evidence which I accept Mr Carter estimated that there would be four or five casual staff in a year.
18. Before his appointment as farm manager at Home Farm, Mr Carter had had a lifetime's experience in farming and had been...
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