Inheritance tax — Agricultural property relief — Whether land consisting of buildings ‘agricultural land or pasture’ under Inheritance Tax Act 1984 — Definition of ‘land’ in section 5 of the Interpretation Act 1978
The appellants
were the executors of B, who died on May 13 1988. The property in question
comprised two and a half acres and included an egg-production building, a
Danish piggery, a covered yard, a six standing abreast parlour with dairy, bull
pen, a number of loose boxes and a farmhouse. The property was bought by B in
1946 and subsequently formed the nucleus of a farming business carried on with
his son on other land owned by a family company or rented from others. The
Inland Revenue refused the executors’ claim for relief from inheritance tax on
the property. In the court below Blackburne J decided that the property did not
come within the meaning of ‘agricultural land or pasture’ in the first part of
section 115(2) of the Inheritance Act 1984. The executors appealed relying on
the definition of land in section 5 of the Interpretation Act 1978.
and (4) to buildings, and the general structure of the definition together show
a contrary intention sufficient to exclude from the inclusions in the word
‘land’ otherwise required by section 5 of the Interpretation Act 1978 the words
‘buildings or other structures’. The property was therefore not agricultural
land for the purposes of the Inheritance Tax Act 1984.
No cases are
referred to in this report.
This was an
appeal against a decision of Blackburne J on an originating summons, issued by
the executors, following the determination of the Inland Revenue rejecting the
executors’ claim for relief from inheritance tax.
Gordon Apsion
(instructed by Hancocks, of Banbury) appeared for the appellants; Michael
Furness (instructed by the solicitor to the Inland Revenue) represented the
respondents.
Giving
judgment at the invitation of Stuart-Smith LJ, Morritt LJ said: This appeal of the appellants, from the
order dated February 4 1994 of Blackburne J, concerns the proper construction
and application of the definition for the purposes of inheritance tax of
‘agricultural property’ contained in subsection (2) of section 115 of the
Inheritance Tax Act 1984. The text of that subsection, into which I have
inserted numerals to facilitate future references to parts, is as follows:
In this
Chapter ‘agricultural property’ means (1) agricultural land or pasture and
includes (2) woodland and any building used in connection with the intensive
rearing of livestock or fish if the woodland or building is occupied with
agricultural land or pasture and the occupation is ancillary to that of the
agricultural land or pasture; and also includes (3) such cottages, farm
buildings and farmhouses, together with the land occupied with them, as are of
a character appropriate to the property.
Also relevant
to this appeal are sections 115(4) and 117 of the Inheritance Tax Act and the
definition of ‘land’ contained in the Interpretation Act 1978. They are in the
following terms:
Section 115:
(4) For the
purposes of this Chapter the breeding and rearing of horses on a stud farm and
the grazing of horses in connection with those activities shall be taken to be
agriculture and any buildings used in connection with those activities to be
farm buildings.
Section 117:
Subject to the
following provisions of this Chapter, section 116 above [which confers the
relief] does not apply to any agricultural property unless —
(a) it
was occupied by the transferor for the purposes of agriculture throughout the
period of two years ending with the date of the transfer, or
(b) it
was owned by him throughout the period of seven years ending with that date and
was throughout that period occupied (by him or another) for the purposes of
agriculture.
Section 5 of
the Interpretation Act 1978:
In any Act,
unless the contrary intention appears, words and expressions listed in Schedule
1 to this Act are to be construed according to that Schedule.
Schedule 1
provides, among other definitions, that:
‘Land’
includes buildings and other structures, land covered with water, and any
estate, interest, easement, servitude or right in or over land.
The question
arises in relation to property comprised in the estate of Wilfred Edward Arnold
Brown, who died on May 13 1988. The appellants are his executors. The property
comprises some two and a half acres situate and known as Highways Farmhouse,
Wigginton Heath, Oxfordshire. The property was bought by the deceased in 1946
and subsequently formed the nucleus of a farming business carried on by the
deceased and his fourth and youngest son Philip through a family company on
land owned by that company or rented as an agricultural holding by the deceased
or his son from others. At the date of the deceased’s death the business farmed
171 acres in all, the tenancies of some 80 further acres having been
surrendered shortly before due to a change in farming policy and difficulty
concerning milk quotas.
The property
was described by the son in paras 7 and 8 of his affidavit sworn in these
proceedings on July 30 1993 in these terms:
It had upon
it buildings which we used for egg production from a battery system, a Danish
piggery which was used for producing heavy hogs and a covered yard with loft
over for housing cattle and storing corn for feeding to the cattle. In addition
to these buildings there was a six standing abreast parlour with dairy, a bull
pen, numerous loose boxes for calving, isolation and housing for young stock, a
smithy and workshop for maintaining machinery and a large hay barn for storage
of winter feed. The 2.5 acre area is screened by hedges … The house itself was
built in 1936 and is a six-bedroomed property. Only a tiny part is laid to
lawn. There are many outbuildings, the
run the farm was always carried out from the farmhouse.
Notwithstanding
the executors’ claim for the relief from inheritance tax allowed to
agricultural property, and the arguments raised in correspondence on their
behalf on May 21 1993, the Commissioners of Inland Revenue determined that the
property was not agricultural property within section 115(2) of the Inheritance
Tax Act 1984. In accordance with section 222 of the Act, the executors were
entitled to appeal to the special commissioners under subsection (2) or, with
the consent of the Commissioners of Inland Revenue, or, if the High Court was
satisfied that an appeal would be substantially confined to a question of law,
with its leave, to the High Court under subsection (3).
By an
originating summons issued on July 1 1993 the executors sought an order, by way
of judicial review, quashing the determination. That application was obviously
misconceived. Accordingly the originating summons was subsequently amended to
seek leave to appeal to the High Court and for an order to the effect that the
determination was wrong. But in view of the need to demonstrate that the appeal
for which leave was sought was substantially confined to a question of law, the
executors undertook to the court that they would not contend that the property
came within the third part of the subsection as being ‘such cottages, farm
buildings and farmhouses, together with the land occupied with them, as are of
a character appropriate to the property’. On that undertaking Blackburne J gave
leave to appeal to the High Court.
On such appeal
the executors did not contend that the property came within the second part of
the subsection as being ‘woodland and any building used in connection with the
intensive rearing of livestock or fish if the woodland or building is occupied
with agricultural land or pasture and the occupation is ancillary to that of
the agricultural land or pasture’. Thus before Blackburne J and this court the
only question is whether the property falls within the first part of the
definition because it is ‘agricultural land or pasture’.
The contention
for the executors was and is that pursuant to the Interpretation Act 1978. The
reference in subsection (2) of section 115 of the Inheritance Act 1984 to
‘land’ includes ‘buildings and other structures’ and as the land and buildings
and other structures were occupied and used for the purposes of agriculture at
the date of the death of the deceased it came within part (1) of the definition
as ‘agricultural land’. The contrary submission which appealed to the judge was
that the primary meaning, namely ‘agricultural land or pasture’ refers to bare
land used for the cultivation of crops or the grazing of animals which is
extended by parts (2) and (3) to include woodland and certain types of
buildings, limited as therein specified, so that the definition in the
Interpretation Act on which the executors rely is excluded. The judge’s reasons
were as follows:
1. The
expression ‘agricultural land or pasture’ is a composite one. Pasture is
undoubtedly bare uncultivated land used for the grazing of animals. The words
‘agricultural land’ when used in association with pasture suggest land of a
broadly similar nature, ie undeveloped land in the sense of land, without
buildings or other structures, used for agricultural purposes such as the
cultivation of crops. The two and a half-acre site as I have described it
cannot be fairly described as ‘agricultural land or pasture’ when understood in
this sense.
2. If the
expression ‘agricultural land’ has the wide meaning for which Mr Apsion
contends, much if not all of what is described in the remainder of the
subsection, including, not least, the reference to pasture, is unnecessary
since all or most of it would, in any event, be embraced within that
expression. So far from extending the meaning of ‘agricultural property’, the
remainder of the subsection would be, at best, no more than particular examples
of agricultural land.
3. Limb (2),
with its reference to ‘a building … occupied with agricultural land or pasture’
plainly envisages that a building which is used in connection with the
intensive rearing of livestock is something other than agricultural land or
pasture. If, however, as Mr Apsion submits, ‘agricultural land’ includes
buildings occupied and used for agricultural purposes it is difficult to see
why buildings used for the intensive rearing of livestock are not within the
expression ‘agricultural land’, whereas buildings used for livestock purposes —
other than for intensive rearing — are within that expression.
4. If
cottages, farm buildings and farmhouses which are occupied and used for the
purposes of agriculture fall within the meaning of agricultural land it is
difficult to see what the point is of the ‘character appropriate’ requirement
in limb (3). If however, cottages, farm buildings and farmhouses, together with
any land occupied with them, are not within the expression ‘agricultural land or
pasture’ but will constitute ‘agricultural property’ if used in connection with
agricultural land or pasture provided that they are of a character appropriate
to such agricultural land or pasture (that is, are proportionate in size and
nature to the requirements of the farming activities conducted on the
agricultural land or pasture in question) then it is possible to attribute a
full meaning to that limb.
5. Section
115(4) states that the breeding and rearing of horses on a stud farm and the
grazing of horses in connection with those activities shall be taken to be
agriculture for the purposes of the chapter. If Mr Apsion’s wide construction
of ‘agricultural land’ is correct that expression would have been sufficient to
enable the buildings used in connection with such activities also to qualify.
Yet the subsection goes on specifically to state that such buildings are to be
‘farm buildings’. That suggests that to qualify as ‘agricultural property’
within the meaning of section 115(2) the buildings in question have to equate
to farm buildings within the scope of limb (3) of section 115(2) and that
qualifying simply as ‘agricultural land’ is not sufficient.
In short, by
giving to the expression ‘agricultural land or pasture’ the more limited — and
to my mind, the more natural meaning — for which Mr Furness contends, it is
possible to give a sensible meaning to the remainder of the definition by
extending the meaning of ‘agricultural property’ to include species of property
which the expression ‘agricultural land’ alone does not cover.
Counsel for
the executors disputes this conclusion and the steps taken to reach it. I do
not propose to attempt to describe, except in the broadest outline, the
arguments propounded in a written argument running to 38 pages. In his helpful
oral summary he contended that the extensions effected by parts (2) and (3)
have just as sensible a meaning and content if part (1) is given the wider
meaning required by the Interpretation Act for which he contends as if given
the narrower meaning for which the commissioners contend and which the judge
accepted. In those circumstances he submits no contrary intention appears for
the purposes of section 5 of the Interpretation Act 1978.
First, part
(1) is not a composite expression for the word ‘or’ is used in the disjunctive
sense. Thus, it does not suggest that ‘agricultural land’ is bare land and that
is not its natural meaning anyway. Second, the use of part (2) to extend the
definition to comprise buildings used in connection with intensive rearing of
livestock or fish was necessary because such building’s might be so used
without any bare land at all, but in any event it cast no light on buildings
used for non-intensive agricultural purposes in conjunction with bare land.
Third, part (3) is necessary to cater for the case of a farm cottage which is
unoccupied or one not occupied for agricultural purposes because, for example,
an elderly relation lives in it. It is submitted that if it is occupied by a
farm worker it is used for agricultural purposes and it matters not whether it
is of a character appropriate to the property. The same point goes for farm
buildings generally; if they are used for agricultural purposes that is enough
whether or not they are of a character appropriate to the property.
The starting
point must be to consider the inclusions prima facie required to be made
by section 5 of the Interpretation Act to the word ‘land’ when used in section
115(2). It is plain that that definition is not excluded in its entirety for
otherwise land covered with water, for example the farm or stew pond, would not
be included. Likewise the words ‘any estate, interest, easement, servitude or
right in or over land’ must be included to cover, for example, the benefit of
agricultural tenancies and profits à prendre or rights of common, for
example, rights of grazing on unenclosed uplands. The form of the definition is
that the word ‘land’ ‘includes’ specified items not that the word ‘means’ such
items. In such a case I see no reason why the contrary intention referred to in
section 5 may not appear in respect of some only of the specified items but not
others. Thus the real question seems to me to be whether the definition of
agricultural property in section 115(2) shows an intention that the word ‘land’
should not include ‘buildings and other structures’.
The first
matter relied on by the judge was that as pasture was
the agricultural land referred to must also be bare land. I do not accept this.
It is common in some parts of the country for pasture to include buildings for
the storage of winter feed or to provide shelter for the animals using the
pasture. Further the Interpretation Act requires the word ‘land’ to be read as
including ‘buildings or other structures’ unless the contrary intention
appears. Thus, neither by itself nor in conjunction with the word pasture can
the words ‘agricultural land’ be read as bare land.
Thus the
intention that ‘buildings and other structures’ should not be read into the
word ‘land’ must appear, if at all, from other parts of the definition or the
Act. In that connection I do not find part (2) to be of assistance. It was
required so that woodland might be included and to resolve doubts which might
be entertained as to the status of buildings used for intensive farming,
whether of livestock or fish.
But part (3)
is, in my view, important for it refers expressly to the buildings and
structures which would be most obviously included in the words ‘agricultural
land’ if the Interpretation Act applied in full. Counsel for the executors
sought to escape from the consequence by submitting that part (3) was necessary
to pick up those buildings which, because they were not occupied for
agricultural purposes, did not come within part (1), but which because of their
character were appropriate to be treated as agricultural land. The problem with
this submission is that it would include in the definition of agricultural
property that which could never qualify for the relief allowed to property of
that type because it could never come within section 117 for which occupation
for the purposes of agriculture for two or seven years is essential. It is
true, as counsel for the executors submitted, that section 117 is not part of
the definition and that tax legislation is not always wholly consistent.
Nevertheless this seems to me to be an indication contrary to the inclusion of
the relevant words said to be derived from the Interpretation Act.
Counsel for
the executors submitted that the judge was wrong to attribute any weight to
section 115(4) of the Inheritance Tax Act 1984. He contended that that
subsection was required to deem the activity of breeding and rearing horses to
be agriculture. That is no doubt right but the significance of the subsection
seems to me, as it did to the judge, to be that parliament thought it necessary
to deal expressly with the buildings used in connection with those activities.
Such treatment would not be necessary if the words ‘agricultural land’ included
‘buildings and structures’ and the breeding and rearing of horses was to be
taken to be agriculture. In my view, section 115(4) is another indication of a
contrary intention.
Finally, I
think it is necessary to stand back and consider the structure of the
definition as a whole. With the exception of the inclusion of ‘woodland’ all
that follows the words ‘agricultural land and pasture’ is concerned with the
buildings of one sort or another which are to be included. In such a context it
would be surprising to find that buildings were already included in the phrase
‘agricultural land or pasture’. It is as though the draftsman had started with
the land and then dealt with what should be treated as going with it.
In my
judgment, the considerations to which I have referred relating to part (3),
section 115(4) and the general structure of the definition together show a
contrary intention sufficient to exclude from the inclusions in the word ‘land’
otherwise required by section 5 of the Interpretation Act 1978 the words
‘buildings or other structures’. It follows that, in my judgment, the judge was
right in the conclusion to which he came and this appeal should be dismissed.
It is
necessary to emphasise that the question for this court was confined to the
proper construction of part (1) of the definition. Thus the question whether
the property with which this appeal is concerned is excluded from part (3)
because there is no other property in the same ownership to which its character
may be appropriate does not arise for decision. Counsel for the Commissioners
of Inland Revenue indicated that the official view is that there must be some
nexus between the property alleged to fall within part (3) and other
agricultural land or pasture and that such nexus must be derived from common
ownership as the structure of the inheritance tax legislation deals with the
diminution in the value of the estate of the transferor. The alternative view
might be that the nexus, which must surely be required, may be provided by common
occupation without common ownership thereby recognising the reality of the
agricultural unit of which, as in this case, the buildings evidently formed
part. But in the circumstances, as I have described them, that point is not
open to the executors and does not arise on this appeal.
Ward and Stuart-Smith LJJ agreed and did not add anything.
Appeal
dismissed.
