Working in Landed Estates you spend a lot of time worrying about farmhouses.  Are they "character appropriate" for the purposes of agricultural property relief (APR) from inheritance tax?  Following the case of Arnander, you find yourself poring over photographs and floorplans thinking "does this have intricate plastered ceilings", "is there a music room which could be used for concerts" and other such questions that make you consider a second career in Rightmove-ad writing.

What doesn't get so much attention is ATED's relationship to farmhouses.  ATED (or the annual tax on enveloped dwellings) was introduced in 2013 and imposes an annual tax charge on UK residential property owned by a company or a partnership with a corporate partner.  It was introduced to deter "non-natural" ownership of UK property; consequently many such structures have been dismantled (or "de-enveloped" to use the common parlance).

The ATED charge, if it applies, can be chunky.  In 2023/24, the annual charge for a dwelling worth between £2m and £5m is £28,650.

There are agricultural estates which, perhaps for historic reasons, are held through companies or, more likely, a partnership which includes a corporate partner.  These companies or partnerships might include let properties as well as the main home where the farmer / landowner lives.

Property business rental relief should be considered in respect of the let properties, but that's a subject for another time.

So what about the farmhouse?  Farmhouse relief from ATED applies where:

(a) a farmhouse forms part of the land occupied for the purposes of a qualifying trade of farming (ie one run on a commercial basis with a view to profit)

(b) a person carrying on the trade is entitled to, or connected with [the company or partnership with a corporate member]" who owns, the farmhouse

(c) the farmhouse is occupied by a farm worker who occupies it for the purposes of trade or by a former long-serving farm worker or their spouse / civil partner.  The "farm worker" needs to have a substantial involvement in the day to day running of the farm or in the direction and control of it.  HMRC says it takes this to mean that the farm worker must work for 20+ hours per week in respect of the farming business.

Interestingly, the original draft legislation had several "character appropriate" tests akin to APR.  These were removed before the final legislation was enacted.  This means that the size, layout, content and grandeur of the property have no bearing on the application of the ATED relief - a valuable point for more extensive properties.  

If farmhouse relief does apply, the relief needs to be claimed annually; the ATED years runs from 1 April to 31 March.

That said, if you or your client owns their farmhouse in a company, you might be out of the ATED woods, but advice should still be taken to ensure that there are no other bear traps lying ahead in the form of benefit-in-kind charges and inheritance tax issues.  What is a farmhouse for ATED may not be for APR.