Changes to letting laws creating headaches
TAX problems and rent reviews are now causing concern following the major changes to land letting laws in 1995.
Many tenants have unexpected tax burdens following a switch from a 1986 Agricultural Holdings Act tenancy to a farm business tenancy, business advisers at a recent conference agreed.
The landlord became eligible for 100% inheritance tax relief, but their tenant was faced with far higher potential capital gains tax.
"The recent Walton case, involving valuation of a 1986 Act tenancy, can be used against tenants here," said Alan Neal of LawNet solicitors Morton Fisher of Kidderminster, Shropshire.
Valuation for CGT
"If they had a tenancy dating from before 1982, the valuation for CGT purposes would have been substantially less because the relationship between the landlord and tenant was different.
"The tenant might originally have been young, expecting to continue for many years and possibly have successors, so the capitalised rental value would have been relatively low.
"Walton now says you have to look at vacant possession value, so there is a significant difference in the valuation of the new tenancy if it is surrendered."
Jane Lichtenstein of solicitors Palmer Wheeldon, Cambridge, said: "The urgent message to farmers with a 1986 Act tenancy is do not enter into any variation, however trivial, without taking legal advice. There are a lot of professionals who are really worried about this and who are trying hard to get into a position to offer the best advice."
Meanwhile she praised the "upbeat and energetic" thought being given to problems raised by FBTs. "The system is very simple, but rent reviews, improvements and how you protect 1986 Act tenancies when any changes are made to them are still niggles that must be resolved. There is still no case law on which to base advice."
There was an urgent need for a new index, relevant to agricultural profitability, on which to base rent reviews, to be set up and run by the industry as an alternative to the open market option.
• Retirement relief may be affected by the forthcoming Budget, perhaps raising the applicable age to 55 or 60, delegates believed. "The rules may be made more stringent because it is possible under the current regime for people to carry on farming afterwards," said Mr Neal.
Worries about inheritance tax and agricultural property relief, and the way the Inland Revenue is trying to argue its application, were also raised.
"District valuers come along and argue farmhouses and cottages are not strictly used for agricultural purposes," said Mr Neal. One farmer was said to have received a £40,000 tax bill relating to his farmhouse.