A question of legality

How is inherited property, in terms of a family farm, dealt with on divorce?

Answered by Heather Weavill, Thring Townsend, Bath

This is a common worry.

A recent court case (P v P) will be of interest in cases where both spouses have been involved in farming during their marriage, with the farm having been in one of their families over a number of generations.

In this case the husband and wife had spent the 19 years of their married life together farming the family farm, which the husband had inherited from his family and which had been in that family over four generations.

The farm was acknowledged to be much more than simply a source of income to him.

The wife would rather avoid a sale of the farm, but the financial recompense she was seeking upon divorce would almost certainly lead to a sale.

The judge ordered that the husband pay a lump sum to the wife, which met her housing and income needs, and which amounted to about 25% of the family assets.

This enabled the husband to retain the farm.

The judge made it clear that while in some cases the fact that property was inherited might count for little, in other cases it might be very significant.

On the particular facts of this case, he felt the following points were relevant:

The bulk of the family’s assets represented a farm which had been in the husband’s family for generations, and which had been brought into the marriage with an expectation that it would be retained as an operating family farm.

Although the farm business had been in joint names, the land had been retained in the husband’s sole name.

That any other approach would force a sale of the farm, with devastating implications for the husband.

That this approach would meet the wife’s reasonable needs.

The court’s decision will always be subject to the overriding priority to achieve fairness between both spouses.

The judge was clear that the above principle is not to be applied to all farming cases, and it is essential that each case is judged on its own particular facts.

 

I understand that farms are being targeted by the Inland Revenue’s Employer Compliance Department and that the main area of attack is the perceived private use of employees such as gamekeepers and others.

Is this correct and what action should we take?

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

If you have not had a PAYE visit in the past three years, I would recommend your accountant or yourself carry out a “payroll health check” to see if the payroll would pass inspection.

If this shows up a problem, you can then set about ensuring that conditions, paperwork and answers to any potential enquiries are in place and that your system would survive an inspection.

Key areas include gamekeepers (ie how much – if any – of a shoot is paid-for days or is the whole shoot simply a private interest?), job-related accommodation, pool vehicles for staff and contractors who might not be genuinely self-employed.

Inspectors will look at payment of expenses and wages to staff and for cash payments including those made to self-employed and casual staff.

They will also check for any weaknesses in the business record-keeping systems as well as reviewing payment of expenses, petty cash and in the case of limited companies, dividends and directors’ loan accounts.

To run your own check, start with the expenses and benefits provided and check these against forms P9D and P11D year-end returns – check for any omissions.

Common problem areas include vans provided to employees which are also used for private motoring, and the payment of cash bonuses.

Inspectors will also be looking at whether PAYE has been paid where applicable on cash payments; for example, to beaters.

If you find a problem, talk to your accountant to sort this out before any PAYE visit, but be prepared to make a disclosure to the visiting officers.

My farm has a barn that is now surplus to requirements.

I am considering renting this out to provide some extra income.

I have heard that I should try to let the barn to a business rather than to a private individual.

Is this correct?

Answered by Paul Wood,  professional services group partner, Reeves & Neylan, Canterbury

The reason for letting to a business is all to do with the capital gains tax that might be payable if the barn is sold or gifted in the future.

If the barn is used for the purposes of a trade, whether it is carried on by an individual, a partnership or a private company, it will qualify as a business asset for taper relief.

Taper relief reduces the amount of a gain which is taxable.

The rate of relief for business assets which have been owned for more than two complete years is 75%, which means that only 25% of any gain made on the barn would be taxable.

The rate of relief which applies currently for non-business assets owned before Mar 17, 1998 is only 25%, meaning that 75% of any gain would be taxable.

You will see that the capital gains tax bill on a sale or gift could be more than three times higher if the barn is not used for the purposes of the tenant’s trade.

The impact these rules will have on you personally will depend upon how long you have already owned the barn, and for what purposes it has been used in the past.

You should also be aware that by letting the barn, it will no longer be used for the purposes of your own trade, which will restrict the amount of rollover relief and holdover relief from CGT that is available.

So, if you are contemplating selling or gifting the barn shortly, it might even pay to keep it in use in your own farming business.

 

This Q&A below applies to Scottish Law only

Since 1983, I have been allowed to live in a property on the estate where I work for my employer.

Is this a tied house and what are my rights in respect of the occupancy of it?

Answered by Victoria Taylor and Saria Akhter, Harper Macleod, Glasgow

“Tied house” is not a legal term, it is a colloquial term for a property an individual is required to occupy to perform his duties for his employer and as such the right to occupy runs with that particular employment.

Upon employment ceasing the right to occupy a tied property also ceases.

Is there an agreement either written or verbal, which governs the terms on which you occupy the property on the estate?

If there is a written agreement, then this should set out the terms of occupancy of the property.

If there is a verbal agreement, you and your employer may have different views as to its exact terms.

To establish in the eyes of the law what the terms are, evidence would be required from both you and your employer.

Your contract of employment should also be checked to see if it refers to grounds of occupancy.

If your contract of employment is silent on this, an inference that the property is a tied house will only be made if your occupation of the property is necessary for the duties actually performed by you for your employer.

If the property is not a tied house you may have rights if you can be classified in law as a tenant.

To meet this classification you would normally have to prove you have been paying rent to your employer.

This can be in actual money or in kind.

If no rent has been paid in cash or kind then there is no tenancy.

If it can be established that there is a tenancy, depending on the type of tenancy, you may have a right to security of tenure.

If you cannot establish that rent has been paid, then you only have a right to occupy the property which has been granted by the employer.

The only basis on which you can then occupy the property is on the terms agreed between yourself and your employer at the time of your occupancy of the property.

Regarding what amounts to rent paid in kind, it may be possible in some cases to argue that where an individual has agreed to be paid a lower wage than that specific job would normally attract, then the difference between the sum the individual would have received had he not resided in the property, and the sum that he actually received, amounts to rent in kind.

You should also consider your position if you have carried out renovation works to the property as you may in specific circumstances be entitled to recover amounts spent on the property if your employer has been unjustifiably enriched at your expense.

This is a complex area of law and requires detailed examination of the facts and circumstances of the case.

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.