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Question Time

What happens if I sell the SFP entitlements I acquired in 2005?

Answered by Adrian Baird, chief taxation advisor, CLA

This will normally give rise to a capital gain because you will have acquired the entitlements at nil value for Capital Gains Tax purposes on 1 January 2005.

However, business asset taper relief will be available where the single-farm payment has been used in a farming or other commercial business that occupies the land.

However, no taper relief will be due for any transfers made before 31 December 2005. For transfers made in 2006, the rate of taper relief would be 50% and after 1 January 2007, the relief rises to the maximum of 75%.

I farm in partnership with my father and brother.

My father is thinking of retiring soon and my brother and I both want to continue farming but each on our own account.

I have been told that we might have to pay stamp duty if we divide up the land that we have.

Is this correct?

Answered by Neil Franklin, partner, Rollits, Hull

The rules and calculations that apply to partnership transactions are complex and you should seek advice on Stamp Duty Land Tax (SDLT) as early as possible.

Some of the transactions targeted by new legislation include the transfer of property to a partnership from a partner or a person or company connected to them, changes in partnership shares and the transfer of property from a partnership to a partner or person or company connected to them.

Whether SDLT will be charged in your case will depend on how the land is being divided between you, whether you are paying anything for it, what shares each of you has in the partnership and whether the land is actually a partnership asset.

HM Revenue & Customs’ view as to whether or not land is a partnership asset for the purposes of SDLT might differ from what appears in your partnership accounts.

It might class land as a partnership asset even if the title to it is only in one of your names.

If you are simply being given your share of the partnership’s land then it may well be that you do not have to pay any SDLT.

If SDLT is payable, then it could be charged on the market value of the land being transferred rather than what you are actually paying for it.

The rate and amount of SDLT varies with each transaction but generally varies between 0% and 4%.

When farm machinery is acquired, what is the difference in VAT treatment between leasing and hire purchase?

Answered by David Missen, Larking Gowen, Norwich

With a hire purchase contract the asset passes to you straight away and all the VAT can be recovered up front.

On a leasing contract, the asset remains the property of the leasing company and VAT is charged on the periodic rental payments.

I inherited £220,000 from my parents about five years ago.

I put £150,000 into my husband’s farming business (paying off a few debts, purchasing equipment etc) and have kept the rest in a separate account for a rainy day.

I’m now separating from my husband and am worried he’s going to be able to keep the money I put in and possibly claim some of the separate money if we divorce.

What is the legal position?

Answered by Suzanne Kingston, partner, Dawsons Solicitors, London

On divorce, the court will consider all the circumstances of the case and look at what assets are available for division between you. Normally, any inherited assets will be included in the calculation of the overall assets.

There was a case (H v H (2002)) in which the husband successfully argued that a sum of money he had inherited should be ringfenced and kept out of the overall assets, because he had kept it in a separate account since he received it and it had not therefore ever formed part of the family’s money.

You may be able to make a similar argument in relation to the £70,000 you have kept in a separate account.

As to the rest of the money, case law suggests that this would almost certainly be included in the overall assets available for division.

That does not mean that this would automatically be divided equally between you.

The court would take into account all the circumstances of the case, including the length of the marriage, what both of your financial needs are for the future and what contributions you have both made to the marriage, both financial and non-financial.

As a general rule, the longer the marriage, the more likely it is that the matrimonial assets will be divided roughly equally between you, although you may be able to argue that special treatment should be given to your financial contribution to the business through your inheritance.

I am thinking about giving one of the farm cottages to my daughter, who is in her twenties.

She lives with her husband and is not going to come into the family business.

The cottage is empty but could probably be let for £400 a month if she does it up.

It is worth about £120,000.

What is the tax position?

Answered by Alan Sturrock, trusts and tax partner, Addleshaw Goddard, Manchester

A gift of this nature is likely to give rise to a capital gains tax (CGT) charge because a disposal between family members is treated as though it was a sale made at market value, regardless of the fact you will not be receiving any money.

The amount of tax you have to pay will depend on how long you have owned the cottage, its value when you acquired it, and whether you have any losses you can set against the gains.

If you have used the cottage for business purposes then you may be able to hold over some or all of the gains arising so the tax is effectively deferred until such time as your daughter disposes of the property.

You and your daughter will need to send a joint notice to this effect to the tax inspector.

Note, however, that a letting business does not qualify as a business activity for this purpose unless the cottage has been let to farm workers.

You may want to consider selling the cottage to your daughter (perhaps at an undervalue) rather than gifting it to her.

This won’t avoid the CGT liability but it will give you some funds with which to pay it off.

There won’t be any stamp duty if the price is less than £120,000.

The main advantage, assuming your daughter borrows the necessary funds, is that she will be able to offset the mortgage interest against any rental income.

The gift of the cottage and/or cash is potentially subject to inheritance tax if you were to die within seven years of making the gift.

However you have a “nil-rate band” (currently £275,000) which is set against the value of gifts made in the seven years before your death (taking earlier gifts first) and then against your death estate.

So, unless you have made previous gifts that have to be taken into account on your death, there shouldn’t be any IHT to pay on the gift(s) to your daughter.

My father has reached retirement age and his landlord has said I can take over, but that it will have to be a 20-year Farm Business Tenancy.

Do I have to agree to this?

Answered by Philip Meade, Davis Meade, 103 Beatrice Street, Oswestry

The short answer is no. Assuming your father’s tenancy started before 1984, then you have the right to apply for succession to your father’s tenancy.

You can either do this now, once he is 65, or on his death.

You will have to apply to the Agricultural Land Tribunal, which will decide whether you are eligible for the tenancy.

The main areas in which you must qualify relate to your relationship to the current tenant, the number of years you have earned the majority of your living from the farm, your health, your experience and the extent of any other land you may farm.

The landlord can have his say but he does not make the final decision.

If there is doubt about whether you might be successful it would be sensible to consider giving some concessions such as extra rent or perhaps surrendering a cottage you do not use.

But you should not accept a FBT unless you have little or no chance of succeeding.

If you feel you have a good case, then there is no need to concede anything at all, although there will always be some doubt and an ALT application and hearing can get expensive.

If you do persuade the landlord to grant you a full new tenancy, ensure it is worded correctly.

Give us a try

Email your questions to fwreaderqueries@rbi.co.uk or fax them to 020 8652 4005 or write to Farmers Weekly, Legal Queries, Quadrant House, The Quadrant, Sutton, Surrey SM2 5AS. All questions will be published anonymously.

Question time

I am the sole title-holder of a 23ha (57 acres) freehold property.

My family has been in continuous occupation since 1895, first as tenant and since 1946 as owners.

The farm passed to my mother in 1968 on my father’s death and I became my mother’s tenant in 1970.

My question concerns a 50-perch (one-third of an acre) plot bounded on one side by the public highway and on the other three by my land and the main access to the farm.

The title deeds show that in the 1920s, the farm changed hands except for this plot.

In 1974 my mother made a constitutional declaration to the effect that in her lifetime (she was born on the farm) the plot had never been fenced and had been managed as part of the farm.

No communication had ever been received from the owners.

I supported the declaration and we thought we had acquired squatter’s rights.

In 1974 a road-widening scheme involved this plot.

I also got planning consent to widen my access over part of it.

Nothing was heard from the owners then or since.

My mother passed the farm to me in 1992.

Latterly, gas and water mains have passed under the plot.

Earlier this year I transferred a small parcel of land that made it necessary to obtain the farm’s definitive map from the Land Registry.

In it, the 50-perch plot was lined off.

The Land Registry has no record of the 1974 declaration.

The solicitor who administered the declaration tells me that registration was not compulsory at that time in our district.

He advised me to swear another declaration, but added that this may draw the attention of the owners of the plot.

My dilemma is whether to pursue the matter, bearing in mind the costs, or let it lie.

The land is designated agricultural and green belt.

Answered by William Green, Burnetts, Carlisle

You are in the best position to judge how important this land is to you, but my initial view is that this could be pursued further.

You should contact your solicitor again, and begin to gather more information.

First, carry out an index map search at HM Land Registry of the land in question.

The reply will tell you whether it is registered or unregistered.

If it is registered the registration details will include the name of the owner, and you will at least know who you have to deal with.

If the land is unregistered, you need to consider whether the deed of gift you refer to (dated 1992) contains the land your mother mentioned in the 1974 Constitutional Declaration – a document more correctly called a Statutory Declaration.

If it has been included, then you may seek a voluntary first registration using the statutory declaration, the deed of gift and a further statutory declaration by you to cover the period 1974 to date.

This may not remove all of the potential worries you have as regards the ownership of the land but, if successful, will certainly put you in a better position so far as anyone else’s future claims are concerned.

Even if the land was not specifically mentioned in the 1992 Deed of Gift, you can still make application to the Land Registry for registration supported by your further statutory declaration.

You refer to easements granted for pipelines to your local gas and water companies through the ground in question.

Unfortunately you do not give a precise date as to when this happened.

The granting of an easement by the “owner” shows they still feel they have right to the title, and could be the source of problems in the future.

It should be possible to obtain a copy of the deed, and this will provide further information.

We are retired farmers and own a small farm consisting of 50 acres, a range of agricultural buildings and two houses.

The land and buildings are let on a two-year agricultural tenancy.

We live in the farmhouse which is subject to an agricultural occupation clause. The other house is let on a yearly tenancy.

I assume the let house will be subject to inheritance tax (IHT) and wonder what the position is regarding the house we live in.

Answered by Julie Butler, FCA Butler & Co, Alresford, Hants

Under current legislation both farmhouse and cottage would fall into the IHT trap.

The problem is that you retired and let the land and buildings.

You are therefore not trading and so the houses are not used in the farming trade.

The tax planning key is never to retire!

Ideally you should have entered into a contract farming arrangement and then the farmhouse would stand more chance of obtaining relief.

If the let cottage was included in the business and the business accounts there could be hope for IHT relief under the 1999 case named Farmer.

However IHT relief on farmhouses is under attack from the Inland Revenue and in your case, with only 50 acres, it could be challenged on what is known as the “character appropriate” rules.

There is great scope for IHT protection, but it needs detailed professional advice.

I have been approached by a developer who would like to use an area of my land to site turbines for a proposed wind farm development.

What type of agreement will I be expected to enter into and how might this affect my Single Farm Payments?

Answered by Pamela Todd and Hazel Tait, Agricultural Practice Group, Harper Macleod LLP, Edinburgh

It is common for this type of arrangement to be implemented by an option agreement and lease.

The option can be for whatever length of time is acceptable to both parties, and gives the developer time to determine the suitability of the land for development and obtain planning and other consents for construction.

The option will entitle the developer to require the grant of the lease of the land for the development.

It is important to consider the extent of your ownership of the land and to be aware of the implications of any reservation of ownership of minerals.

In many cases normal agricultural activities can continue around the turbines.

In relation to the Single Farm Payment scheme, it is very important that the landowner or tenant retains the right to farm the area in and around the turbines.

That will ensure that it remains within the control of whoever is claiming entitlement to the SFP.

Farmers must be aware of their obligations in relation to the ten-month rule and their continuing cross compliance obligations, which must be met as a condition of receiving SFP.

The other main concern for landowners is the restoration of the site at the end of the project.

This is regulated in two main ways:

An obligation in the lease to restore the area after the term of the lease has expired.

The Scottish Ministers or planning authority will make restoration a condition of the granting of a consent.

The landowner should ensure that the restoration bond is written so that the landowner can call on the bond if the developer does not restore the site to the satisfaction of the landowner and the planning authority.

Always take legal advice in relation to the specifics of the land under your ownership or tenancy.

I have noticed recently that people are walking on part of my land linking two existing public footpaths which also cross my land.

However, the new route they are using is not a public footpath and I am concerned that a right of way may be created by this use.

What should I do?

Answered by Nigel Farthing, Birketts, Ipswich, Suffork

A public right of way can be established by long usage.

After 20 years’ use there is a statutory presumption that the route has become a public right of way unless the landowner can demonstrate that during that period he had no intention to dedicate the route for public use.

Under common law a public right of way can be acquired in less than 20 years.

To avoid rights becoming established, it is important you demonstrate that you have no intention of allowing the route to become a public right of way.

One way to achieve this is by erecting a fence or barrier to prevent the public from taking the new route.

Alternatively you can erect a sign making it clear that the public are not permitted to use the route.

Signs that just say “Private” or “Private Land” often have no effect.

The best form of words is “Private Land.

No public right of way”.

A more effective measure is to lodge a statement and declaration in accordance with Section 31(6) of the Highways Act 1980 with the highway authority.

This demonstrates your lack of intention to dedicate any new rights of way over the land covered by the statement.

The only cost involved is preparing a simple statement and plan and making a statutory declaration to confirm the facts.

My mother and father have occupied and farmed for over 50 years via an agricultural farm tenancy.

On the recent death of my father, it has been discovered that the tenancy agreement was solely in my father’s name.

The farming activities have always been carried out by the farming partnership in my mother and father’s names.

To the best of my knowledge no formal partnership agreement was ever put in place.

There are two questions I would like answering:

Owing to the fact that the partnership has always paid the rent, has the farming partnership established a right to the tenancy?

My sister has been living and working on the farm for the past 15 years.

Can it be argued that she has an entitlement to the tenancy and can it be transferred into her name?

Answered by Graham Smith, Roythornes, Spalding, Lincs

It is unlikely that the partners have become tenants.

However, the succession provisions of the Agricultural Holdings Act 1986 apply.

Either your mother or your sister may well be eligible to succeed and they should both consider making applications.

It is likely to be better for your sister to become tenant as the younger person.

There is a time limit for claiming succession of three months from your father’s death.

This cannot be extended.

There is a special form to complete and a lot of information will be required.

You must take advice immediately from a land agent or solicitor with appropriate experience.

Give us a try

Email your questions to fwreaderqueries @rbi.co.uk or fax them to 020 8652 4005 or write to FARMERS WEEKLY Legal Queries, Quadrant House, The Quadrant, Sutton, Surrey SM2 5AS. All questions will be published anonymously.

Question Time

I have applied to the local Council for 10 holiday lodges to be sited on one of my permanent pasture fields in a pretty location on the farm.

The planning authority says it will refuse the application because the proposed development is in an exposed location and detrimental to the character and appearance of the countryside.

It also says the lodges would harm protected species and habitat, as well as generating traffic in an area poorly served by public transport.

What should do?

I thought the government wanted to encourage tourism in the countryside?

Answered by Barry Davies, Davies & Co, Kettering, Northants

For a start, your planning application is for a change of use of agricultural land, not for the erection of dwellings.

So it’s important that the description of the development in the application says holiday lodges.

You will need a topographical survey to help you prove that the lodges are not going to be located on ground that is prominent in the landscape or detrimental to the countryside.

An environmental statement may be required to address the wildlife and habitat objections, too.

This should list any protected species and habitat in the area and suggest measures to minimise the impact of the plan.

Contact the Environment Agency to see if they want to have an input.

Local traffic levels and the layout of your existing farm access may mean the site is not suitable for the number of lodges proposed.

If the access is off an unclassified road, it needs to be at least 4.8m wide with a verge of 1m on either side.

Visibility is important, too.

Standing 2.4m back from the road, you need to be able to see 215m in either direction.

If you need to widen the access, it must be carried out by council-approved contractors.

It will help if the site is served by public transport, public footpaths, or cycle routes; check with the local council tourism officer to see what is available.

You may have to do a transport assessment, too.

The national planning documents that give support to this form of development are PPS7 (paras 30, 34, 38, 39 and 40), PPG21 – Tourism (currently under consultation) and PPG13 – Transport. It may be worth quoting them to the planners.

It is also essential to involve the local parish council and gain its support.

Attend the local parish meeting.

If planning permission is gained, it may well put a limit on the total number of weeks in any one year that the lodges can be occupied.

This is to ensure they are used for holiday accommodation and not sold off.

You will probably have to do some landscaping, too.

I am in my early 60s and farm as a sole trader.

I have a son and a daughter, both in their mid-30s.

My son has always lived at home, and is paid a small wage for work on the farm.

My daughter is married and lives with her husband and children away from the farm.

I would like to leave the farm to my son.

But I wish to provide something for my daughter on my death, and have made a will leaving the farm, livestock and machinery to my son, with everything else being left to my daughter.

Are there any pitfalls I should be aware of in the light of the new Single Payment Scheme?

Answered by Matthew Elias at Nigel Davis Solicitors, Belper, Derbyshire

I presume that the intention is to leave your daughter with any assets other than the farm.

Unfortunately, this means that your current will won’t transfer any entitlements to the Single Payment to your son.

Entitlements to the Single Payment are personal to you, and do not attach to land, so these will pass to your daughter together with the residue of your estate.

To rectify this you should either make a new will or add a codicil to your current one ensuring that in addition to leaving your son the farm, livestock and machinery you also leave him your entitlements to the Single Payment.

If you do not do this, the consequences for the viability of the farm once it has been left to your son could be disastrous.

I have three full time staff, one of whom seems to be accident prone.

He is not a tidy worker, for example leaving jobs unfinished in the workshop.

He doesn’t always communicate well with other staff.

As a result, one of them used a machine in an unsafe and unsuitable condition recently and we now have a large repair bill to pay.

Apart from this, most of our minor accidents and repairs always seem to involve this employee in some way.

I have spoken to him several times to try to get him to improve, but fear I am getting nowhere.

I am worried that there will be a serious injury one day.

What can I do?

All the men have been with us for several years.

Answered by Phil Cookson, Roythorne & Co, Spalding

Two main areas of concern need to be addressed here – health and safety and disciplinary procedures.

Health and Safety – as an employer you have responsibilities for ensuring as far as is reasonably practicable the health and safety of your employees.

You, therefore, need to ensure that all employees are fully trained in relation to the safe use of machinery.

While it may not have been the fault of the second employee that the machine was in an unsafe condition he ought not to have used it when it was.

A refresher on safe working practices may be necessary.

Disciplinary Procedures – bringing formal disciplinary action against an employee is never a pleasant task.

That said, you need to start to protect your position; it appears that the informal chats have not had the desired result.

You can and should begin a formal process to address the capability/conduct issues that are demonstrated by the continued carelessness.

You need to check whether or not you have your own disciplinary procedure – if not then there is a statutory minimum procedure which is now in place.

Following a fair procedure is vital as a failure to do so can result in what would otherwise be a fair dismissal being procedurally unfair and an award possibly being made against you.

Initially, a formal warning against repeat behaviour seems appropriate.

The warning needs to be time-limited (causing no more accidents by careless behaviour for six months, for instance) and could be coupled with retraining as necessary.

If a further incident happens within the period then a final warning can be given and if this still fails to improve the situation then a dismissal may result.

It is best to get advice (ACAS is a useful source) on each step as it comes up to ensure that the proper procedures are followed.

I am a tenant farmer and bought a second home for retirement several years ago.

The second home is uninhabitable.

The local council says that as the maximum five-year period of exemption for a property requiring structural or major repairs was granted before April 2000, no further exemption can be allowed.

The property is, therefore, now chargeable at full rate.

I understood that a government concession in 2002 allowed for a 50% discount to be given to those who are required to live in tied accommodation by legal agreement.

Is the council correct in demanding the full rate on the second property?

Answered by George Dunn, Chief Executive, Tenant Farmers Association

As an agricultural tenant you are entitled to 50% relief on any council tax owing on a second dwelling subject to certain conditions.

First, your tenancy agreement must require you to occupy a dwelling provided by the landlord.

Second, the second dwelling must have been purchased either for retirement or to occupy at the end of your tenancy.

Third, the second dwelling must not be the main residence of anyone.

But it is clear that some local authorities do not understand the rules as contained in Statutory Instrument 3011 of 2003.

As a result the rules are being interpreted too narrowly by those authorities by providing the 50% relief only to employees who are required to live in job-related accommodation and have second dwellings.

The Tenant Farmers Association has government confirmation that the rules do apply to anyone (including tenant farmers) who is required by any legal agreement to occupy an alternative dwelling.

It has used this to help members overturn the decisions of rating authorities where relief has been denied.

If a local authority continues to deny relief then an application can be made to the Valuation Tribunal.

Two of my company’s biggest clients have not paid the bills I sent them for contracting work.

I am worried that they will be unable to pay me at all.

Our suppliers have continued to let us have materials on credit, but I am starting to wonder if my company’s position is hopeless.

As a director, can I be sure that if the company cannot trade out of its difficulties my house and other personal assets are secure?

Answered by Robert Swift, Wilsons, Salisbury

No, you cannot!

If a company has gone into insolvent liquidation and traded when a director knew, or ought to have concluded, that there was no reasonable prospect that the company would avoid liquidation, the court may declare that the director is liable to contribute to the company’s assets out of his own pocket.

The court must not make such a declaration if satisfied that, once the director knew or should have known the company could not avoid liquidation, he took every step which a reasonably diligent person would have taken to minimise the potential loss to the company’s creditors, assuming that person has both:

(a) The general knowledge, skill and experience that may be reasonably expected of a director, and

(b) The general knowledge, skill and experience of the particular director.

All directors need to be aware that if they are wrongfully trading, their liabilities are not limited to their investment in their company.

In some companies there are directors who, in reality, have little to do with the running of the business and they might be best advised to step down to avoid exposure either to their personal assets being called upon to make good a company liability or to a charge of wrongful trading.

Give us a try

Email your questions to fwreaderqueries@rbi.co.uk or fax them to 020 8652 4005 or write to FARMERS WEEKLY Legal Queries, Quadrant House, The Quadrant, Sutton, Surrey SM2 5AS. All questions will be published anonymously. Please give enough detail to allow an accurate answer to be given.

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