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Capital Tax Review by Matthew Hutton, MA, CTA (Fellow), AIIT, TEP

Matthew Hutton MA, CTA (fellow), AIIT, TEP author of Capital Tax Review, comments on the Lands tribunal decision in ‘Antrobus No 2’.

Context

The effects of the Lands Tribunal decision in favour of HMRC in Antrobus No 2 (see CTR Issue No 13 (Winter 2006) Item 4) continue to be considered. The appeal which had been lodged against the decision was withdrawn on 2.12.05 and so the decision is final. Subject to future judicial authority on the point, how should taxpayers and their advisers respond meanwhile?

The Lands Tribunal interpretation: three caveats

First, the narrow construction placed by the Lands Tribunal on the meaning of ‘farmhouse’ (viz, as the residence of the working farmer) may in future be construed by the Courts as an obiter dictum and not as part of the ratio decidendi. To arrive at the ‘agricultural value’ of Cookhill Priory, the Lands Tribunal had to hypothesise who might be a potential purchaser of the property. Accordingly, it was only within this context that the observation on the meaning was made. The Lands Tribunal has a limited remit in matters of law to issues of valuation.

Further, the narrow construction is hard to reconcile with an observation made by Lord Upjohn in the House of Lords Case IRC v Korner 45 TC 287 suggesting that a farmhouse should be judged ‘… in accordance with ordinary ideas of what is appropriate in size, content and layout, taken in conjunction with the farm buildings and the particular area of land being farmed, and not as part of a rich man’s residence …’. Note the important reference to the nature of the property in the context of a farm rather than the personal circumstances of the occupant. Notwithstanding the reasons given by the Lands Tribunal for discounting this view, which is of great authority, the Courts may not in future be so ready to dismiss it.

There is also a possible conflict between the two Antrobus cases on the meaning of what is a farmhouse. Although Miss Antrobus had been a working farmer, she may not have had to live in Cookhill Priory to support her working life. This presents a warning against using Antrobus No 2 outside the question of who might be a potential buyer of the property.

Second, it is currently unknown if and to what extent, if any, HMRC will attempt to lift the narrow construction of a farmhouse outside its technical confines. The CLA in particular is keen to monitor the use of the decision in other cases, viz where those cases are not connected with valuation.

Third, even as a valuation case, Antrobus No 2 must be approached with extreme caution. The Lands Tribunal dismissed so-called ‘lifestyle farmers’ from being potential purchasers of Cookhill Priory based on the narrow meaning of ‘farmhouse’. In deciding that the agricultural value of Cookhill Priory was 70% of its market value, the Tribunal dismissed evidence of three properties subject to agricultural occupancy conditions as not being fair comparables. Eventually, the 30% discount was based on the evidence of only one property considered to be comparable. Accordingly, the decision turns on extremely limited factual evidence.

In other cases real factual evidence may be produced to suggest that something other than a 30% discount should be employed. Further, there may be real evidence that a ‘lifestyle farmer’ has bid for the property in question at or near its market value in circumstances that he or she intends to occupy the property as a farmhouse (on the Upjohn basis), even though the farming operations may not be the buyer’s major source of income. Here, in Antrobus No 2, the oral evidence of Malcolm Hawkesworth FRICS was very striking, even though apparently completely disregarded by the Lands Tribunal.

Meanwhile, great uncertainty assists – hardly of much help to those currently engaged in IHT planning or analysis. But clearly the decision should not be taken simply at face value.

(Country Landowner and Rural Business, CLA Journal January 2006, p10, article by Adrian Baird, CLA Chief Taxation Adviser)

Comment

One of the possible arguments suggested in Adrian Baird’s article was that the Lands Tribunal pronouncement on the definition of a farmhouse for APR purposes took them outside their narrow remit of matters of valuation and should be regarded only as an obiter dictum. A similar point in reverse had arisen in the case of Arkwright, where Gloster J in the High Court considered that Dr Nuala Brice as Special Commissioner had overstepped her remit in trespassing on areas of valuation which were a matter for the Lands Tribunal (see CTR Issue No 8 (Autumn 2004) Item 4). What is the present status of that case? Although Gloster J had referred the matter to the Lands Tribunal, it appears that the case has now been compromised between the parties. Sadly, therefore, the ingenious points of Dr Brice’s judgement used to justify a valuation discount on the death of a joint owner of property where the surviving owner was his spouse are now a matter of history – and must be left for argument on another occasion.

April 2006

Matthew Hutton MA, CTA (fellow), AIIT, TEP

More Information

The above article has been taken from Matthew Hutton’s Capital Tax Review, a quarterly update for professional advisers of private clients. For more information, visit http://www.taxationweb.co.uk/books/capital_tax_review.php.

About the Author

Matthew Hutton is a non-practising solicitor (admitted 1979), who has specialised in tax for over 25 years. Having run his own consultancy (latterly through Matthew Hutton Ltd) until 30th September 2000, he now devotes his professional time to writing and lecturing.

THE FIFTH ESTATE PLANNING CONFERENCE: CURRENT ISSUES 2006

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