Tax Planning For Landed Estates

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Tax Planning for Landed Estates

John Endacott

Tax Partner

Field of play

• Business or pleasure, sir

• Tax changes

• Case law developments

• All about structuring activities

Wealth taxes debate

• 50% tax rate

• Mansion tax

• Wealth tax

• Large property holdings?

• Trusts?

Business property relief - background

• Business or interest in a business

• No relief where business wholly or mainly making or holding investments

• No relief for investment businesses

• Hybrid business – all or nothing test

To Farmer and beyond

• FA 1976

• Caravan cases

• Factors considered in Farmer– Capital employed

– Time spent by employees and consultants

– Levels of turnover

– Net profit figures

– Overall context of business

• Historical use of properties

Balfour case

• Brief facts– 2,000 acres

– In-hand and let farming, residential and commercial lets, grazing forestry, private water supply and shooting

– Life renter under Scottish law

• Composite nature of activities

• General assessment and impression

Points to look at

• Bring farms back in hand?

• Share farming

• Farmer/Balfour – 8 year period considered

• Presentation of accounts

• Planning and s 106 issues

• Keep your options open

Other activities

• Woodland– Ancillary to agriculture, or – Commercial exploitation

• Any trades connected with woodland

• Sporting rights• Shooting• Fishing

• Business or pleasure?

BPR – Story so far

• No relief where only activity is rental income

• Good record keeping and accountancy advice required

• No single factor is determinative

• Consider restructuring

• Can Balfour make it worse?

Farmhouses – agricultural property relief

• IHTA 1984, s 115(3)

• “Ancillary”

• “Character appropriate”

• Antrobus 1 & 2

• Starke, Dixon, Higginson, Rosser & McKenna

Farmhouses – Golding case

• 16.29 acres

• Farmed since 1945

• 3 bedrooms (no electric)/downstairs bathroom

• “Poor state of repair”/“dilapidated”

• Farmhouse as not good enough to be a domestic residence

Forthcoming changes - losses

• Losses condoc

– Capital allowances

– Agricultural connection

• £25,000 cap

• Restriction of losses likely

Forthcoming changes – capital allowances

• Reductions in capital allowances

• R & C Brief 3/10

• Capital allowances and FITs - condoc

• Integral features– CAA 2001, s 198– Mandatory pooling

– More anti-avoidance

• Retrospective claims

Furnished holiday lettings – the interesting stuff

• Property letting or trading

• New day count tests

• Capital allowances

• Ring-fenced losses

Furnished holiday lettings – trading?

• Occupation on site

• Services provided

• Case law

• HMRC guidance

• Losses

• Business property relief

Furnished holiday lettings – day count tests

• 105/210 days from April 2012

• Averaging

• Period of grace

• Genuine intention to let/commercial

• Watch planning restrictions

Furnished holiday lettings – capital allowances

• Dwelling houses

• Curtilage of properties

• Integral features

• CAA 2001, s 13B

Furnished holiday lettings – ring-fenced losses

• Restriction of losses

• Only other furnished holiday lettings

• Plan expenditure carefully

• Losses condoc

Don’t shoot the messenger

• Is it a separate trading activity?

• Property trading or exempt (woodlands) income?

• Be careful over private expenditure

• Commercial activity – use of losses

• Benefit in kind issues for farming/estate companies

The PAYE game

• Casual beaters (PAYE Manual 23015)

• Tips paid to gamekeepers

• Gamekeeper – benefits in kind

– Living accommodation

– Vehicles

– Clothing, licences and gundogs

• PSAs

• Company owners

Shooting - non-domestic rates

• Not farming/agriculture

• Business rates are payable

• 28 day planning rule on change of use

• Get specialist advice

Shooting - VAT issues

• Is it a commercial activity?

• Standard and zero-rated supplies

• Barter transactions

• VAT registration threshold

• Business splitting

• Private expenditure

Shooting at the courts

• Rt Hon Lord Fisher

• R F Bailey (t/a Llancillo Hall Farm)

• J O Williams

• Thimbleby Farms Ltd

• E G Harrison

VAT – disaggregation of businesses

• Forster case

• B&B and farm

• Were the two businesses sufficiently at arm’s length?

• HMRC direction overturned

Summary of points

• More property taxation coming

• Carefully structure activities

• Think about the activities

• Be consistent

• Better news on farmhouses

• Long term planning essential

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