It is a growing trend within farming businesses to diversify away from traditional agricultural activities on the farm, in order to generate more income streams and spread the risk of a ‘bad year’, whether this be in relation to livestock or crops. The extremes of the severe snow during lambing earlier in the year compared with the scorching temperatures and extensive dry spells of the summer have brought this into clear focus over the past 6 months.
However, it is important to be mindful of how such diversification can have a wider impact on the farm.
For example, for tenant farms it will be necessary to ensure that any diversification does not breach the terms of the tenancy which may limit use to agricultural purposes. It may also be necessary to obtain the landlord’s consent if non-agricultural activity is permitted under the terms of the lease. For the landlord – he needs to consider whether the diversification by the tenant affects their own position as this could result in a non-relievable use of the farm.
For landowners farming in-hand, the loss of Agricultural Property Relief for Inheritance Tax purposes on death can have far reaching and lasting implications for the family, especially if Business Property Relief (‘BPR’) is not available to the diversified business activities.
One focus of H M Revenue and Customs (‘HMRC’) in this regard has been furnished holiday lets.
For BPR to be available, the business must not ‘consist wholly or mainly of… dealing in securities, stocks and shares, land or buildings or making or holding investments.’
For the past 15 years HMRC and the courts have tended to view holiday lets as investments in the underlying land which do not qualify for BPR. This has been on the basis that they are not trading businesses like hotels or B&Bs.
However, in the recent case of Graham V HMRC, the Personal Representatives of Mrs Graham’s estate were successful in arguing that her holiday lets constituted a business rather than an investment, resulting in the application of BPR and a large saving in Inheritance Tax.
Key factors of the case which enabled its success were the additional services provided to guests, such as a swimming pool, sauna, bikes and generous personal care, including buying groceries for guests and even offering a taxi service if they got lost while out and about. They also had well-kept gardens which offered fresh herbs and tomatoes for guests to use when in season.
The Courts concluded that the services provided went beyond merely holding the land as an investment, and as such BPR was available.
Whilst this case may be viewed as a triumph for holiday lets, it is widely suggested that HMRC will appeal the decision.
At Hay & Kilner, we can help to review any diversified business activities which have been undertaken, or which are in the process of being considered, in order to ensure that the business activities are structured in the best way to meet the needs of the wider business and also ensure exemptions and reliefs are maximised.
For more information on any of the above, or how we can help your business, please contact Alison Hall for a no obligation consultation, or call 0191 232 8345.