Replies to queries - Property transfers

Property transfers

We act for several farming clients and have the following inheritance tax problems.

1 A widowed partner in a farming business wants to gift a 'statutorily' protected tenant's cottage to her daughters (the tenant was previously a farm worker). Currently, this would qualify for agricultural property relief (APR), but if she died within seven years and the daughters had sold the cottage (say after three years), would there be a withdrawal of APR in her estate or would it still qualify?
2 Similarly, another working farmer wishes to give his buildings to his daughters and they will then seek development permission. If he died within seven years and the daughters had sold to a developer in, say, four years, would there be a reclaim of APR and if so presumably the value to be used in the estate would be market value at the date of the gift?

Readers' thoughts on these matters would be most welcome.
Query T16,613            — April.

The question of whether agricultural property relief (APR) continues to apply when circumstances change between the date of gift and the date the potentially exempt transfer (PET) fails is secondary to whether it applied, provisionally, at the date of gift. In both cases, the question which needs to be asked first is whether the act of severance of the ownership of the buildings in question from a unified farm of itself prevents APR from being available to the donee under IHTA 1984, s 115(2).
There are three limbs to this subsection. The first is to the effect that 'agricultural property' means land. This is extended by the second limb to certain buildings (albeit not those with which the second scenario is concerned) and woodland occupied with that land and whose occupation is ancillary to that of the land. The third limb covers farmhouses, cottages and farm buildings occupied with the land as are of a 'character appropriate' to that land (even though the statutory phrase is 'the property'). As the official view has always been that the 'character appropriate' test has to be applied to property within the same ownership, the act of severance itself has deprived the cottage and buildings (respectively) of any 'property' to which the statutory definition can be applied.
The value to which inheritance tax is applied in the event of a failed PET is that at the date of gift, rather than the date of death (or earlier sale). In the event of such a sale, IHTA 1984, s 124A(3)(a) and (b) would, furthermore, have cancelled any APR which could have been attributed to the gift. If, in the second scenario, the value of the buildings at the date of gift exceeded the APR threshold under s 115(3), any business property relief which could have been claimed (and it is highly unlikely that IHTA 1984, s 105((1)(a) could have been satisfied), s 113A(3)(a) and (b) would have cancelled it.  

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