Analysis
Joseph Nicholas Hanson (the appellant) appealed against a notice of determination dated 3 October 2005 that had determined that a farmhouse occupied by the appellant as his home at 11 The Green, Great Horwood, Milton Keynes (the house) was not agricultural property for the purposes of inheritance tax relief. HMRC’s position was that the required nexus between a farm building and agricultural land was common ownership and common occupation. The appellant submitted that the required nexus was common occupation only. It was further submitted by the appellant that his father, Joseph Charles Hanson (the deceased), had no valuable beneficial interest in the house immediately before his death or that if he did then it was reduced by the value of the appellant’s equitable interest.
Immediately before his death on 9 December 2002, the deceased was life tenant of the house pursuant to the terms of a settlement created in 1957 by the deceased’s father, William Hanson Senior. The remainder was held on trust for the first son of the deceased to survive him and attain 21 years. Since 1978, the appellant had occupied the house and the deceased had lived elsewhere. During the life of William Hanson Senior, the family had farmed a number of parcels of land extending to 800 acres. Following the death of William Hanson Senior in 1960, the farm had been operated by the deceased and his brother, William Hanson Junior. The appellant and his brother, Andrew Hanson, had joined the partnership in 1986. In about 1991, the farm was partitioned between the deceased and William Hanson Junior. A further partition took place 1992. The deceased, the appellant and William Hanson Junior had continued to farm 280 acres until the partnership was dissolved. Only the appellant continued to farm. There was a further splitting of holdings and the deceased sold about 100 acres. At the time of his death, the deceased retained a half share in 36 acres of land and an interest in a cottage occupied by William Hanson Junior. The appellant continued to farm.
The appellant had carried out improvements to the house during his occupation. The appellant’s evidence was that he had understood the deceased to be giving up his share of the house to him but accepted that if he had predeceased the deceased then the house would have gone to his brother, Andrew. It was submitted by the appellant that the deceased had no interest, or a reduced interest, in the house on the basis of proprietary estoppel or implied trust. Alternatively, occupation of the house, ancillary to his farming activities, meant that the necessary nexus between agricultural land and buildings was satisfied.
Held (allowing the appeal)
- 1. The land owned by the deceased at this death would have been a marginal case for a viable farming unit. The fact that the ownership was only half ownership meant that it could not be considered a viable farming unit (para [39]).
- 2. No effective disposition had been made by the deceased satisfying the writing requirement for a disposition of an equitable interest in land (paras [42]-[44]). There is no constructive trust or proprietary estoppel:
- (i) A constructive trust requires evidence of a common intention that a person other than the legal owner should have a share or all of the beneficial ownership of the land (paras [48]-[50]). There is no evidence of such a common intention and all the evidence goes the other way. For example, in the IHT200 form, the appellant had stated unequivocally that at the date of his death the deceased had the right to benefit from the house to its full value and that the appellant occupied it under a licence (paras [51]-[52]).
- (ii) Proprietary estoppel requires a promise, representation or assurance made to the claimant and detrimental reliance on it by the claimant. There is no evidence to support such a finding. The appellant occupied the house rent free, with the expectation that he would obtain full beneficial ownership on the deceased’s death. These facts explain his expenditure on repairs (para [53]).
- 3. The language of the definition of agricultural property does not require buildings to be occupied with any particular agricultural land or pasture, provided that the occupation of the building is ancillary to some agricultural land or pasture (paras [66]-[74]). It suggests that the nexus between cottages, farm buildings and farmhouses, within the definition, is a nexus of occupation rather than of ownership (paras [75] and [85]). Such a meaning is wholly consistent with the scheme and purpose of the inheritance tax legislation in general and agricultural relief in particular (para [85]).
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