THE most attractive reliefs from inheritance tax are reserved for working farmers.

Precisely because ‘farmer’ status is so valuable, it is a concept that is closely policed and HMRC’s scrutiny is intensifying.

The battle lines with HMRC are drawn up most sharply where landowners farm with or through third parties, principally via grazing agreements and contracting agreements.

Put simply, HMRC will not accept that a landowner who produces a grass crop that is taken as grazing by cattle belonging to a third party, is a farmer.

A bona fide contracting agreement can offer a conduit to ‘farmer’ status but only if the landowner bears a genuine commercial risk as a result of the farming activities carried out on their land.

Many contracting agreements fail this key test.

Even if the landowner is not a farmer then provided the land is farmed for the requisite period the agricultural value of the land should continue to qualify for IHT relief.

But, and his is the key point, if the land-owner is not farming it will not be possible for the landowner’s executors to secure IHT relief on any development value inherent in the land, nor can there be any possibility of IHT relief on the landowner’s home.

There are strategies for reviving or restoring farming status, the most straightforward is of course for the landowner to engage in full time farming, either as a sole trader or in partnership with other family members or third parties.

If this is not viable the tax planning focus could shift to the transfer of assets that are vulnerable to IHT, down to the next generation of the farming family either outright or perhaps via a trust structure.

For more information, please contact David Maddock, Partner in Clarke Willmott’s Private Client Team by emailing