Tenants whose landlords seek to renegotiate tenancy terms should tread carefully and ensure they benefit from the deal, warns tenancy adviser Philip Meade.
“An increasing number of tenants are being approached by their landlords to give up their old tenancies and start a new one as the landlord can get inheritance tax benefits,” said Mr Meade of Davis Meade Property Consultants.
This process is often referred to as surrender and re-grant. While a landlord may save tens of thousands of pound in tax, tenants needed to make sure they benefited too, he said.
“A landlord is entitled to 100% inheritance tax relief on tenanted farm assets with a tenancy that started after 1995, whereas the relief for farms subject to pre-1995 tenancies is 50%, so there is quite a lot of incentive to set up a new tenancy.
Tenanted farmland held in trust is also subject to a further 6% tax very 10 years where tenancies began post-1995.
“Although we have been involved in negotiating a few of these re-grants on and off over the past five or six years, things have picked up and some of the big estates are now doing this as part of their tax planning.”
Tenants should consider five key areas, said Mr Meade:
- The new tenancy gives the same rights as old tenancy
- The tenant doesn’t get a capital gains tax bill as a result of any benefit from a change
- Succession rights don’t change
- Any tenants’ improvements are carried forward into the new tenancy
- There is a benefit for the tenant
In some cases a tenant might get a new building or a rent reduction but the benefit must be carefully thought out from a tax and security perspective.
“The tenant really needs to take advice. They could, for instance, end up giving up a lifetime tenancy for a farm business tenancy.” On one estate where Mr Meade is acting the answer has been to give succession to the son in some cases.
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