Are you a farmer or a landlord?
There has always been uncertainty over whether a landowner is a farmer or a landlord for tax purposes. There has however, been a recent useful decision by the First Tier Tribunal in the case of John Carlisle Allen which has helped to clarify the capital gains tax position (and the valuable entrepreneurs relief/rollover relief ) on grass letting, and what constitutes trading or investment activities by the landowner.
The facts of the case are:
- Mr Allen and his brother grew the grass which was eaten mainly by Mr Crooks’ stock.
- The Allens maintained the rights to lairage – temporary housing of animals on the land, supplied fertiliser when needed, maintained fences and drainage, supplied water and engaged a Contractor to cut the weed and hedges.
- Mr Crooks could graze stock or take silage off between 17 March and 1 November and claim the subsidy for part of the time. He was not permitted to spread artificial fertiliser on the land, only farmyard manure. He had to control his stock and repair any damage caused by them.
- The Allens occasionally supplied fertiliser free when the grass was getting weak, but this did not happen every season.
- The ground was left to recover over the winter for fear of poaching.
- The £1,000 paid a year was described in the agreement as a “licence fee” rather than rent.
The Judge found in favour of the taxpayer. He stated that the Allens had demonstrated an awareness of the land and its condition and the need to maintain it. The actions were not one of a property investor. Although Mr Crooks was taking the grass, it was the Allens who were farming the land by managing it in such a way as to maximise the grass crop produced and maintain its quality. Their input into the husbandry of the land was critical.
So what can landowners take from this case if they wish to be classed as a farmer rather than a landowner?
- Keep a diary or record of what you do from day to day, month by month.
- Keep clear detailed notes to record the work undertaken and management carried out.
- Carry out soil testing every few years, and take advice on applying the right quantities of lime, phosphate etc., to correct soil deficiencies, minimise wastage and maximise the crop.
- Carry out weed control.
There are, as stated above, valuable capital gains tax reliefs which apply to a trade but not to the letting of land. Make sure you are in a position to utilise them if needed.
For further information please contact the tax team at Green & Co on 01633 871122.