Theleialao taxi ve ,‘lv a vaotaie tocoo i erfronioheritaocetax

TAK: Farming

Earlier this year the Chancellor of the Exchequer, Philip Hammond, wrote an open letter to the Office for Tax Simplification (OTS) in January asking for a review of Inheritance Tax (IHT). The OTS responded it will carry out a review by issuing a consultation this year.

The scope of the consultation will include looking at complexities arising from IHT reliefs, and the scale and impact of taxpayers’ decisions on investments. This could result in the OTS suggesting Agricultural Property Relief (APR) is amended, or even abolished.

‘‘

APR can apply as a relief from IHT to landowners with tenant farmers, as well as those who occupy their own land, but it only gives relief in respect of the agricultural value.

The ownership and letting of land involves many taxation and legal considerations. For those landowners who choose not to actively farm the land there are many choices:

•

Land can be let out on flexible terms on modern tenancies.

• Farm land and property that qualifies for APR can be relieved from Inheritance Tax at a rate of either 50 or 100 per cent.

• For any lease granted after September 1995, there will be 100 per cent Agricultural Property Relief available, but not until the land has been owned and used for agriculture purposes for seven years.

Where the owner farms the 100 per cent APR is available

land, after occupation of two years, so there is an incentive to farm the land, or be seen to farm it. These include share farming and contract farming arrangements. Contract farming is common in arable farming and there are various styles adopted. These joint agreements generally involve the landowner receiving a rent equivalent, referred to as a first charge and the contractor receives a fixed amount for the contracting. The profit is shared on an agreed basis at the end of each year.

With a Contracting Arrangement the key difference from any lease is that the landowner is participating in the trading activity. There can be some Inheritance Tax benefits that come with this set up, however HMRC will often challenge cases involving a Contract Farming agreement where the farming decisions are made by the contractor rather than the landowner. Care needs to be taken as often over time the landowner becomes less involved if elderly or suffering from ill health.

If Inheritance Tax benefits cannot be guaranteed with a Contracting Agreement there can be Capital Gains Tax advantages available. If a landowner sells a farm, Capital Gains Tax can be payable at a maximum rate of 20 per cent. There is a reduced rate of Capital Gains Tax for those qualifying for Entrepreneurs’ Relief.

To qualify, the landowner must have been trading for 12 months and using the land in the course of the trade. There will be no opportunity to claim Entrepreneurs’ Relief if all the land is let.

If selling is a possibility in the future a Contracting Agreement could be more advantageous to a landowner than some form of lease.

Any landowners planning to let land or enter into a Contracting Agreement should consider all the legal and tax issues and put plans in place now as sadly a lack of planning is often exposed when it is usually too late.

Andy Ritchie is a Partner and Head of Rural at Campbell Dallas.

is a Partner and Head of Rural at Campbell Dallas