Farmers and landowners who have diversified away from pure agricultural activities will be relieved to learn that a recent appeal by Her Majesty's Customs and Excise (HMRC) has been refused.

HMRC were challenging a previous decision to give 100 per cent Business Property Relief (BPR) on the estate of the late Lord Balfour. BPR is a valuable relief from Inheritance Tax which meant that in this instance no Inheritance Tax (IHT) was due to be paid on Lord Balfour's death.

Lord Balfour's property consisted of 1,900 acres of farmland and forestry, comprising two in-hand farms, three let farms, some commercial buildings and 26 let houses and cottages. One of the crucial points is that if Lord Balfour had simply let land and cottages then his estate would not have been eligible for BPR.

However, because the letting business only formed part of Balfour's overall business activities and the trading activities of farming, forestry and shooting dominated the business, it was considered all his assets, including the let properties, qualified for BPR.

This may all seem rather esoteric to many readers of this column, but not to farmers who have diversified away from traditional farming activities.

For instance during the last 10 years or so, while agricultural incomes fell to historically low levels, many farmers were forced to look for other income streams to support their main farming activities.

Many such businesses included converting redundant buildings to be let for offices or simply storage. Indeed Government encouraged farmers to diversify, but in so doing concerns were raised that some diversification activities may result in farmers losing certain IHT Reliefs such as BPR.

However, the Balfour case which has now been upheld seems to support other case law such as Farmer v Inland Revenue Commissioners which was heard over 10 years ago.

This means that BPR should be available on all property, including let property where the lettings form a relatively small part of a single business and the main activity of that business is a trade such as farming.

Thus the decision in this case will be comforting news to owners of traditional landed estates who carry on a range of business activities, and those farmers who have diversified away from pure agricultural operations on their property, both of whom can expect to qualify for BPR if their circumstances are similar to those in the Balfour or Farmer cases.