Barker Gotelee

But is it business as we know it?

There are many different ways of making a living from land.  At one end of the scale the land owner is letting the land and getting rent from it as an investment income.  At the other end of the scale, he is exploiting the land to trade on his own account, generating trading profits.  A recent inheritance tax case in Northern Ireland reminds us of the great tax benefits that are gained if the land is treated as being part of a trading business rather than an investment asset.  The case also gives guidelines as to where the dividing line is.  In the case Mrs McClean was letting her 33 acres of farmland under an agistment agreement to a local farmer.  Agistment agreements are short term grazing agreements where the owner of the livestock does not have vacant possession.  The landlord retains possession and manages the land while it is being grazed.  In effect the land becomes a hotel for cattle, sheep or other livestock.  The landowner takes in other peoples’ stock for grazing usually for a period of weeks or months.  If it is part of a wider farming operation, the benefit of agistment is that the landowner is carrying out a trading business rather than just letting the land.  The landlord is not giving away possession of the land so it should qualify for 100% agricultural relief for inheritance tax.  Remember, agricultural relief gives exemption from inheritance tax on the agricultural value of the asset.  If it is part of a trading business, the land should also qualify for business property relief.  This can give complete exemption from inheritance tax on the whole value of the land.  This difference between agricultural and business relief is particularly important if the land has significant non-agricultural value (for example, if it has hope value for development).  This was the case with Mrs McClean’s land.  Its agricultural value was £165,000, but it was zoned for development so its market value was £5.8M.  When Mrs McClean died her executors claimed business property relief in the hope that the whole value of it would be exempt from tax.  However, the Special Commissioners determined that the work Mrs McClean’s son-in-law did in managing the land through agistment was insufficient on its own for it to be a trading business.  Instead it was an investment business, so no business property relief was available. The huge amount of tax at stake shows the importance of getting timely advice to increase the chances of getting tax relief in these situations.  If Mrs McClean had arranged things differently, for example grazed her own animals on the land, the results could have been different. James Skellorn © Barker Gotelee