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Farmers Weekly: Renting out land on a farm business tenancy (FBT)

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11 February 2019

Article featured in the Farmers Weekly on 8 February 2019, please click here to view the full article. 

Here Lisa Oliver, Associate Director at Hazlewoods, offers advice on renting out land on a farm business tenancy

Inheritance tax (IHT)

Land let under an FBT will qualify for Agricultural Property Relief (APR) but will not qualify for Business Property Relief (BPR), so any value above agricultural value will not receive any IHT relief.

The other consideration is the farmhouse; assuming the landowner continues to live in the farmhouse, then once they no longer occupy the land they will lose IHT relief on the house. However, if this is the only asset in their estate that does not qualify for relief this may not be a problem.

Income tax

When farming the land in hand, the business proportion of the house and vehicle expenses will qualify for income tax relief against trading profits.

Renting land out on an FBT will not change house and vehicle costs much but you cannot claim these against rental income, whereas if you are a trading business, you would be able to claim a percentage.

Capital gains tax (CGT)

If circumstances change in the future and the let land is to be sold while still let, the land will no longer be considered as a business asset for CGT and reliefs such as Rollover Relief and Entrepreneurs’ Relief are unlikely to be available.

VAT

Generally, rental income from farm land and buildings is an exempt supply for VAT purposes. This means no VAT is charged.

Renting out all the land will lead to deregistration for VAT if the only income is rental income. If part of the land is rented out, this will lead to the business being partially exempt for VAT purposes.

Renting out property on an Assured Shorthold Tenancy (AST)

An AST generally has a minimum term length of six months.

Inheritance tax (IHT)

If property is rented out through the farming business, then provided the partnership is still predominantly a trading business, and the houses are partnership assets, they should qualify for BPR and would not be subject to IHT.

Capital gains tax (CGT)

Any gain on the sale would be subject to CGT. As a rental property is not considered to be a business asset for CGT any reliefs such as Rollover Relief and Entrepreneurs’ Relief are unlikely to be available.

VAT

Rental income from residential properties is an exempt supply for VAT purposes.

Renting out the properties on an AST would mean the partnership would become partially exempt, and consideration would need to be given to whether any of the input VAT on any of the repair costs would be recoverable under the ‘de minimis’ rules.

The de minimis rules allow VAT relating to exempt supplies to be recovered provided it amounts to less than £625 a month and is less than 50% of the input tax incurred in the VAT accounting period.


Lisa Oliver - Associate Director
Lisa Oliver
Associate Director Contact details