Tax Relief on
UK Farmland
Tax relief should not be the driving force behind any investment decision;
however, UK farmland can be a very tax-efficient asset.
As far as being a longer term
investment there will be factors
such as the scarcity value of UK land
and the general trend in commodity
prices, but investors should consider
that there are increasingly clearer
distinctions in value between the
different grades of UK land, as well
as by geographical location.
Commercial land uses seem to
keep expanding (food production,
recreation, building and
development, energy production,
water supply/storage and even air
quality). It has even been suggested
that climate change may benefit
UK land for food production where
lower-latitude regions may expect to
see increasing problems.
There are a number of favourable UK
tax reliefs for UK land and farming,
including:
• Capital gains tax: the availability
of both holdover, rollover and
entrepreneurs’ relief (now with a
lifetime limit of £10m).
• Income tax: sideways tax relief
for farming losses of up to
approximately 60%, subject to
any sideways loss relief caps for
the individual in question. There
are however potential restrictions
around the number of years of
repeated losses, as well as the
need to work at least ten hours a
week in the business.
• Value added tax (VAT): it may be
possible to reclaim VAT (currently
at 20%) on purchase costs, such
as agent and legal fees, with full
VAT recovery on costs of farming
operations, farmworker-occupied
property and potentially partial
VAT recovery on costs associated
with the farmhouse where an
option to tax has been elected.
• Inheritance tax: the potential
availability of up to 100% relief
via business property relief or
agricultural property relief in
respect of 100% of the agricultural
value.
• Stamp duty land tax (SDLT): a
‘mixed use’ farming property
may benefit from lower rates on
acquisition than a large residential
property of equivalent overall
value. The additional 3% second
residential property SDLT charge
does not apply to the acquisition
of a mixed use property.
smithandwilliamson.com
Smith & Williamson is an accountancy, investment management, financial planning and tax
group with a network of 12 UK offices and dedicated Agriculture and Landed Estates teams.
Offices: London, Belfast, Birmingham, Bristol, Cheltenham, Dublin (City and Sandyford),
Glasgow, Guildford, Jersey, Salisbury and Southampton.
Contract farming and share farming
arrangements are widely used,
such that there is no need to drive
the tractor (unless you want to),
however there is a need to retain
control of decisions such as cropping.
It is crucial to get full and proper
advice regarding these structures
at the outset to ensure they work
practically and for tax purposes.
Equine studs may be businesses and,
if run fully commercially, inheritance
tax relief may be possible. That said,
horses are not generally agricultural
for tax purposes, unless the activity
is breeding horses, and there is not
necessarily the extensive tax relief
available if the land is mainly used
for equine activities.
We will be happy to assist with
any queries you or your contacts
may have in respect of investing
in farmland or other property
acquisitions.
To discuss your specific
circumstances, please contact:
Lisa Ball
Private client tax
services partner,
Smith & Williamson
01722 431035
[email protected]
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for
any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing. The tax treatment depends on the individual circumstances of each
client and may be subject to change in future.
Smith & Williamson LLP Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International.
The word partner is used to refer to members of Smith & Williamson LLP.