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Tax Planning for Farm and Land Diversification

Author: Julie Butler (FCA)

Edition: Sixth

Publication Date: 2020

Publisher: Bloomsbury Professional

Law As Stated At: 1 September 2020

Tax Planning for Farm and Land Diversification

Tax Planning for Farm and Land Diversification

Tax Planning for Farm and Land Diversification has been extensively updated to cover all the developments in this area, in particular regarding subsidies, property development and Brexit-led implications, as well as a greater emphasis on probate preparation and disputes.

Every chapter has been updated to take account of the numerous changes in agriculture since the previous edition. As such, it covers:

  • COVID-19 and the Agricultural Bill: Brexit heralded the phasing out of the BPS with the Agriculture Bill (yet to become an Act) (1.20) and with it, uncertainty of farming without subsidies. It also questioned the future of farming at a profit. Farmers have undertaken greater diversification in the farming operation, e.g holiday accommodation, liveries and office letting (which have been the worst hit by COVID-19). The impact of COVID-19 is discussed at 1.27.
  • Evidence and fact verification: A flurry of tax tribunals have reiterated the need for evidence before the reliefs are claimed and the need for expert witnesses. HMRC shows its continued attack on principle private residence relief in tribunal with Higgins going to the Court of Appeal (4.13). The advantageous ‘mixed use’ rate of SDLT has been under attack from HMRC with the Dr Hyman (4.52) and Myles-Till (4.53) cases emphasising the need for evidence together with contemporaneous fact reconciliation.
  • Loss claims: HMRC has continued its rigorous verification of loss claims with the notable ‘hobby farming’ case Nagashineh with the taxpayer’s win on 17 years of losses being overturned in upper tribunal by HMRC (12.23). Equine is such a large area of farm diversification and we look at the denial of tax loss claims on the trade of racing in Cliff (2.8) with vicious penalties due to lack of evidence. Business plans and evidence are essential.
  • Capital allowances: HMRC has demonstrated how marginal capital allowances claims can be and how it likes to pursue them to the tribunal stage. The iconic grain silo case of May (7.7-7.10), together with the Cheshire Cavity Storage case (7.10), emphasise the need to be able to evidence ‘plant like’ as opposed to ‘storage like’. The introduction of the Structures and Buildings Allowance (7.13) helps emphasise the need for tax advisers to fully evidence the nature of all farm improvements and plant. There was also a drop in the AIA limit to £200,000 on 1 January 2021 (7.2).
  • Inheritance tax and capital gains tax: High profile successful farm IHT cases dominate the headlines with HMRC’s enthusiasm to ensure claimants can prove services for diversification; for example, Vigne and liveries (13.56) plus Graham and holiday accommodation (6.14). See also the importance of the ‘working farmer’ in Gill for APR on the farmhouse and BPR on the land for grazing agreements (4.49). All these successes for the taxpayer are made more focused with the need to show ‘hope value’ for potential farm development land in Foster (5.46), with the ‘top down’ rather than ‘bottom up’ method of valuation. The drop in the ER limit for CGT from £10 million to £1 million in the 2020 Budget with the renaming of ER to Business Asset Disposal Relief (BADR) has put a large emphasis on rollover relief and ‘the rollover buyer’ for farm development land (10.18). Rollover relief cases of the disallowed farm cottage in Bell (14.23) and the interesting Leeds Cricket Football & Athletic Company Limited case (14.17) have helped with tax planning guidance.
  • Farm disputes and accounts: The plethora of farming court cases hitting the headlines, e.g James v James, Guest v Guest (13.59) and Horsford v Horsford demonstrate the importance of the strong ‘fully understood’ farm partnership agreement that is correctly reflected in the accounts together with well-drafted farm wills (2.17). Understanding partnership ownership of the farm through the ‘land capital account’ in the accounts and property owned outside the partnership is essential. Land registration and the LPA as tax planning tools are considered. Documentation of promises made as to the future ownership of the farm to prevent estoppel claims is essential. There are historical farm accounts in existence which do not reflect the correct ownership/partnership agreement and accountants shouldn’t be afraid to rectify accounts to reflect the correct position.