News: Analysis
A taxing problem for farmers
Neil Budd, senior associate and energy lawyer at SGH Martineau, warns of the
hidden dangers of inheritance tax for landowners allowing the construction of
solar farms on agricultural holdings
W
ith developer RWE Innogy
recently shelving plans for the
240-turbine Atlantic Array project
in the Bristol Channel, there is
likely to be even greater interest in the role
solar energy can play in the UK meeting its
renewable energy targets.
This growing interest in solar energy
presents an attractive income stream for
farmers, with most solar plant developers
wanting a 25 year lease on the land they use.
Importantly, the development of a solar plant
on low grade farmland, such as fi elds used
solely for grazing, does not necessarily mean
the land is lost to farming.
In fact most solar developers will consider
allowing the fi elds to be used for grazing
provided that they have the ability to stop the
grazing should the solar plant suffer damage.
In our experience, whilst grazing obviously
keeps grass growth under control, it generally
rules out goats, as their penchant for eating
just about anything, including the sheathing
on electricity cables is well documented.
Solar plant developers have been
encouraged by recent planning guidance
for renewable and low carbon energy, with
many foreign companies looking to expand
their operations in the UK. The Department
for Communities and Local Government has
made it clear, that when assessing a planning
application for a solar plant on farmland,
local authorities should consider whether the
application allows for continued agricultural
use and/or encourages biodiversity
improvements around solar arrays.
So far it all sounds good for landowners,
but one issue that has not attracted much
attention is the potential inheritance tax
implications for farmers who are intending to
allow a solar plant to be built on their land.
Inheritance tax is payable on an estate
when someone dies provided that the estate
exceeds a certain threshold (£325,000 in
2013-14). A farm will be included in a person’s
estate for inheritance tax purposes; however,
Grey area: It remains legally unclear if agricultural land hosting solar farms will retain its inheritance
tax relief for farmers, says energy lawyer Neil Budd
agricultural property relief will apply to
agricultural property which forms part of a
working farm.
This raises an interesting question;
does leasing land for a solar plant mean that
the relevant fi elds are no longer eligible for
agricultural property relief?
Does leasing land for a solar
plant mean that the relevant
fi elds are no longer eligible
for agricultural property
relief?
Unfortunately, like many facets of English
law, the answer is not entirely clear. The
grant of a lease will not in itself cause the
relief to be lost, but it is necessary for the
land to continue to be used for agriculture. It
is arguable that, if the lease is granted to the
solar plant developer and the land is licensed
back to the farmer for grazing, this would
be suffi cient for relief to continue to apply.
However, this cannot be said with certainty.
One possibility we have explored is for a
company to be established and for the whole
farm to be transferred to this company. In this
case, the farmer’s interest in the land would be
converted to an interest in shares which, for
inheritance tax purposes, should be entitled
to business relief. It would not be advisable
however, for the transfer to take place solely in
relation to the fi elds on which the solar farm
was to be developed, as business relief does
not apply if the main business of the company
is to hold land.
This issue highlights the importance of
considering the availability of agricultural
property relief in the round and the overall
farming enterprises undertaken. Landowners
should seek expert advice on the matter to
ensure the benefi ts of the relationship are truly
symbiotic and not just assume the developer
is offering a ‘fi t and forget’ income stream for
25 years.
www.renewableenergyinstaller.co.uk | 7