For nearly 20 years most farming families have been able to rely on Agricultural Property Relief to reduce, or even extinguish, an Inheritance Tax liability.

Agricultural Property Relief applies to the agricultural value of agricultural property. Historically the practical effect of the relief was that most owner/ occupier farming families were able to pass the whole farm, including the farmhouse, tax free to the next generation.

Sadly circumstances have now changed. Residential values have increased significantly and the Valuation Office and the taxman are now looking at such transfers in far greater depth. Many farmers are not finding that Inheritance Tax is payable on a substantial part, or indeed the whole, of the value of the farmhouse.

The statutory rules are concise but interpreting the rules is different. There are often very considerable sums at stake so several cases have been before the Special Commissioners recently.

We now have guidance to "tests" to be applied to see whether or not a farmhouse is a farmhouse that qualifies for Agricultural Property Relief.

Unfortunately the tests that the Valuation Office apply are slightly different to those favoured by the Capital Taxes Office and, of course, the Special Commissioners have their own views.

One of the most exotic tests is the "Elephant Test" which says, in effect, although most people find it hard to describe a farmhouse, everyone knows what one looks like. The two photographs above are easily differentiated by the "Elephant Test".

As usual, tax is more complicated than it initially appears. Farming families considering Inheritance Tax planning can either "do nothing and hope the problem goes away" or take professional advice. Surveyors, in conjunction with solicitors and accountants, can help farming families both to implement lifetime Inheritance Tax planning strategies and can resolve problems arising after death.

In order to provide effective advice, surveyors must be familiar with the statutory provisions; aware of how the Valuation Office and Capital Taxes Office may interpret them and, above all, must have extensive local knowledge, not only of values in the "real world" but also of local farming practice, in order to establish a farmhouse really is a farmhouse for Inheritance Tax purposes.