The Upper Tribunal has upheld a First-tier Tribunal (FTT) decision on agricultural property relief (APR) in Hanson (as Trustee of William Hanson 1957 Settlement) [2012] TC 01791 ruling that APR was available on the deceased Mr Hanson's farmhouse.

The issue involved a farmhouse from which all the farming operations were run. This property had been settled by Hanson's father for him for life absolutely. He moved out of the farmhouse in 1978, and his son and his family moved in, remaining there until his death. Immediately before the death, the farmhouse and the son's farming land were in the same occupation, both occupied by the son. Hanson was treated for IHT purposes as owning the farmhouse but not the respondent's land.

The FTT said that the core of the definition of agricultural property is 'agricultural land or pasture' but it also includes the other matters specified in the second and third limbs of the definition, including whether a farmhouse is 'of a character appropriate to the property'.

The Upper Tribunal, dismissing HMRC's appeal, agreed with the findings of the FTT that the farmhouse was in common occupation with the land owned by Hanson's son and this land could be used for the character appropriate test.

The Upper Tribunal stated that their findings do not mean that common occupation will 'always and necessarily constitute a sufficient nexus. It may be right that there can be situations in which, although there is common occupation of agricultural land and a cottage, farm building or farmhouse, there is not a sufficient nexus. We have not thought of an example where this would be so, but do not rule out the possibility.' It is unlikely though that such an issue would ever arise since the 'character appropriate' test might itself not be fulfilled in such a case.

Julie Clift, CCH tax specialist, said: This decision may be beneficial to farmers who wish to move out of the farmhouse and give away much of their agricultural land. Although it does appear to widen the scope of APR it also highlights some of the complexities faced by executors in the area of agricultural property.