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.
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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.