Rural Valuations - Common questions related to farmland and rural property
The Rural Report’s new agony uncle, George Jewell of Knight Frank’s Rural Valuation & Advisory team, answers common queries relating to farmland and rural property
6 minutes to read
George Jewell of Knight Frank’s Rural Valuation & Advisory team
I have heard that HMRC has undertaken a consultation on Stamp Duty Land Tax (SDLT). Is this relevant to the planned future sale of our small farm? We would like to downsize and invest the proceeds
The short answer to your question is, quite possibly. In your case, assuming there is some, perhaps limited, commercial use at your property, the potential for the purchase to qualify for mixed-use SDLT, which attracts a lower rate than a residential-only purchase, is one of the factors likely to make it attractive to the market.
However, as detailed below, the government’s potential response to the consultation regarding mixed-use SDLT could affect some of this benefit. This, coupled with the current scarcity of property available, means you could consider bringing your planned sale forward.
If your investment plans include the purchase of residential properties then, depending on the detail, it might be that the current multiple dwellings relief (MDR) SDLT regime, which is also under review, is advantageous to you, again supporting an early sale.
HMRC consulted over the winter on changes to SDLT, specifically mixed-use property purchases and MDR, and the resulting proposals are awaited.
Under the current regime for mixed-use property, a successful claim for mixed-use SDLT based on a purchase including both residential and non-residential property offers significant tax savings. Additionally, the higher rates for additional dwellings (HRAD) SDLT, where a buyer is purchasing a second home, applies only to residential as opposed to mixed residential and non residential purchases.
HMRC has identified cases where the amount of non-residential land in a purchase is very small and yet the significantly lower rates of SDLT under the mixed-use regime have been applied. As a result, it has consulted on an apportionment basis of tax computation between residential and non-residential uses or a threshold basis.
Under this basis a purchase will only be treated as a mixed-use property if the non-residential element is more than a certain proportion of the overall sale price. This could be as high as 50%.
As mentioned, HMRC has also consulted on the current MDR regime that applies where a purchase includes at least two dwellings in a single transaction or as part of a series of transactions. Here, a buyer can choose to pay SDLT based on the average value of the dwellings purchased.
The consultation considers several options. These include: removing the relief on residential property; introducing a subsidiary dwelling rule, whereby MDR is only applicable on an annexe where it makes up at least one-third of the total value; or allowing MDR on purchases of three or more dwellings only.
HMRC is currently analysing feedback on the consultation.
We have been successful in claiming Agricultural Property Relief (APR) on elements of the family farm, including the farmhouse, following my mother’s death. My siblings want to move forward to distribution of the estate and believe there will be no tax to pay. Are they correct?
Depending on the precise circumstances of the farm it is likely some tax will be payable and you should seek professional advice. APR applies to the agricultural value of property and is defined in statute as:
“The value which would be the value of the property if the property were subject to a perpetual covenant prohibiting its use otherwise than as agricultural property”.
It is the reference to the perpetual covenant that means there is frequently (but not always) a taxable band of value between agricultural value up to market value. This can be a factor in land value where there is hope value attributable to an alternative use, but it is often the subject of debate between advisors and HMRC with regard to farmhouses.
There are several important cases with regard to what is and is not a farmhouse, but as your claim for APR has been accepted, I expect HMRC has stated the agricultural value of the farmhouse is 70% of the market value based on the Antrobus II case.
It is important to remember that each case should be based on its merits and the 70% held in that case is not a rule or precedent. We have, however, seen cases where taxpayers, understandably relieved to have secured APR, have immediately agreed that 30% of its value is taxable.
As I say, each case is different and numerous factors should be considered including local and regional markets, the nature of the farmhouse, its location on the farm in relation to other buildings and whether there are any relevant planning restrictions.
Undoubtedly, in securing APR on the farmhouse and other assets you have gained a very valuable relief from tax but you should seek advice to ensure that you have maximised your APR claim and also that any applicable claim for Business Property Relief, which can work in tandem with APR, has been considered.
My family has let land surrounding our house to a local farmer for many years but there is no clarity as to his basis of occupation. The farmer would like his son to farm the land as he is thinking of retirement. What steps should we take to regularise the position?
Assuming rent has been paid, it seems likely a tenancy will have been created. It is therefore key to establish when the occupancy began.
If granted prior to July 12 1984, the occupancy may well constitute a tenancy under the Agricultural Holdings Act (AHA) 1986 with succession rights that permit two successors. If it was granted between after July 12 1984 and before September 1 1995 it may be a tenancy under the same Act, for the life of the tenant.
Were it to have begun after September 1 1995 it is likely to be a farm business tenancy. This type of agreement can be brought to an end at its end date or, if running on, by a minimum of 12 months’ notice.
You should take professional advice. If the view is that an AHA tenancy is in place, you should, without delay, serve a Section 6 notice on the tenant requesting a written agreement. This will clearly define the obligations of the parties, but most importantly, it will prevent the assignment by the tenant of a current oral tenancy to a company. Company tenancies can continue indefinitely for the life of the company, whereas succession or lifetime tenancies have a shorter term.
The other advantage of regularising the position is to secure a post-September 1995 tenancy which, even if under the AHA, should, subject to some further details, allow the landlord’s executors to claim APR on death at 100% of agricultural value as opposed to 50%.
Main photo by Lisa Fotios