Tenants told of tax implications

TENANTS WHO are offered large cash incentives to quit or switch their Agricultural Holdings Act tenancies to farm business tenancies should be aware of the tax implications, according to one specialist accountant.

“In the vast majority of cases most AHA tenancies do not qualify for 100% inheritance tax relief and the Inland Revenue may be looking for big cheques from a landlord‘s estate,” said Julie Butler of Butler & Co.
 
“Combined with market value, this means that a surrendered tenancy could be worth up to 50% of the vacant possession value and, if offered, it could be very tempting for the tenant to take this money and run or change to an FBT,” added Mrs Butler.
 
A tenant could also be liable for significant amounts of capital gains tax on any payment, and rolling over the gain into another business asset including a new FBT would be the simplest solution, said Mrs Butler.

For those tenants who do not want to reinvest in this way business asset taper relief could be used, which should result in a maximum rate of 10%.

The use of the annual exemption could help and if the tenancy was owned before Mar 31, 1982 this will reduce the tax bill as the value at that date can be used.
 
If the tenancy includes a farmhouse then principal private residence relief can also be claimed.
 
Although changing to an FBT will give the landlord 100% IHT relief after seven years, farming in-hand or contract farming will give 100% relief in just two years.

“Tenants should be aware of this and factor it into any negotiations,” said Mrs Butler.