Britain?s farmhouses are no longer eligible for full Agricultural Property Relief (APR). A recent decision by the Lands Tribunal means that farmhouses will now probably be subject to some Inheritance Tax (IHT), even if they are owned by farmers who are working the farmhouse?s land.

The decision will have a devastating effect on farmers with the Revenue levying £240,000 IHT on a £2 million farmhouse.

?I think it is awful,? says Clive Beer, Director of Savills, West Midlands, ?I am very surprised at the contents of the judgement?.

Since 1992 farmhouses have been free from inheritance tax so long as they are part of a working farm. However the Inland Revenue highlighted to the Lands Tribunal the difference between the agricultural value of a farmhouse and its open market value. The Lands Tribunal agreed with the Revenue?s suggestion that only 70% (the agricultural value) of the farmhouse should be free from tax.

?The judgement relies upon slack evidence,? Mr. Beer insists, ?The 30 per cent reduction is based on the outcome of one settled case. People settle cases for different reasons ? it doesn?t mean they are adopting the argument. It could mean they don?t want the litigation costs.?

The agriculture industry, which is already under financial strain, will suffer heavily as a result of the judgement. ?It is very unfortunate for the agricultural industry that a farmer is going to have to pay that much tax when a farm passes from one generation to the next,? says Jim Quinn senior partner at MFG solicitors, ?It is not only the lifestyle farmer whose tax position has dramatically altered; every farmer now has a potential liability on the transfer of property. The Treasury are looking to take tax wherever they feel they can properly or politically demand it.?

However both Mr. Quinn and Mr. Beer believe that the recent litigation will be challenged. In the meantime they hope that farmers will be able to take advantage of other tax reliefs such as Business Property Relief and gifts between spouse. ?We would anticipate that litigation is far from over,? Mr. Beer maintains, ? as the judgement asks more questions than it answers.?