Inheritance Tax Business Property Relief and Grazing Land

Normally, the main Inheritance Tax relief relevant to grazing land is Agricultural Property Relief as this takes precedence over Business Property Relief. However, Agricultural Property Relief only applies to the agricultural value of agricultural land and will not apply to any development or hope value. Where such non-agricultural value is at issue a claim can be made for Business Property Relief on the basis that the land is a business asset. If successful, this can reduce the value of the land to nil for Inheritance Tax purposes so that its market value escapes Inheritance Tax. However, a recent case may significantly reduce the number of cases where Business Property Relief can be claimed.

McCall v HMRC was decided before the Special Commissioners in April 2008. It related to pasture in County Antrim where, under the agreement in place, the deceased (or her son in law as her agent) tended the land, including weed control, fence maintenance, litter and damage control and drainage and waterworks. It was estimated that he spent about 100 hours a year tending the land. The deceased died in 1999 and the market value of the land for development use purposes was £5.8 million.

The deceased's executor failed in his claim for Business Property Relief on the basis that, while the Special Commissioner agreed that there was a business, he decided that it did not qualify for relief because the business constituted wholly and mainly of the holding of investments. This was on the basis that the income arose substantially from the making available of the asset, not from other activities associated with it or from selling separately the fruits of the asset. The income arose from making the grassland available so that the cattle might eat the grass, not from cutting the grass and feeding it to the cattle.

It remains to be seen whether the executor will appeal. In the meantime, Business Property Relief should not be relied upon where land with significant development value is merely grazed but rather steps should be taken to ensure that it is used for other agricultural purposes where the business cannot be regarded as merely the holding of an investment.

For more information please contact Clare Colacicchi on 01604 233233 or at clarecolacicchi@hewitsons.com