Most farmhouses will now be subject to some inheritance tax (IHT) as a result of a recent decision by the Lands Tribunal.

Working farmhouses had been free from IHT but the Inland Revenue highlighted to the Lands Tribunal the difference between the agricultural value of a farmhouse and its open market value.

The Lands Tribunal agreed with the Revenue's suggestion that only 70% (the agricultural value) of the farmhouse should be free from tax.

The Lands Tribunal in Antrobus 2 was asked to define the meaning of ‘Agricultural Value’ in relation to the farmhouse which had been determined as ‘Character Appropriate’, and thus benefiting from APR contrary to the Revenue’s contention in the initial Antrobus case which was concluded during 2002.

In the event, the Tribunal also endeavoured to re-define which houses will qualify as farmhouses for the purposes of APR by restricting these to those houses occupied by working farmers, thus excluding the lifestyle farmer’s house from relief.

Jim Quinn, the conducting solicitor and senior partner with mfg solicitors said, "The decision by the Lands Tribunal will create major problems for the entire agricultural industry, the misconception that agricultural property is free from inheritance tax represents a major threat to UK agriculture."

"It is not only the lifestyle farmer whose tax position has dramatically altered, every farmer now has a potential liability on the transfer of property".

Clive Beer, director of Savills, West Midlands who acted as expert witness in the case said he was "very surprised at the contents of the judgement."

It is thought that litigation may yet be challenged. "The judgement asks more questions than it answers," said Mr Beer.