Land tax change could hit farmers hard
Published 18/04/2008 | 12:01
Farmers in Northern Ireland could be hit hard by a new ruling on the tax status of agricultural land, a leading firm of business advisers warned today.
PricewaterhouseCoopers said that a surprise decision by the Inland Revenue's special commissioners could have profound implications for the local agriculture industry.
PwC tax director Nigel Anketell said that, historically, HM Revenue and Customs had accepted in practice that agricultural land let in conacre - the system under which small farmers let out their land - was part of the normal trading business of farming.
But in a new ruling the commissioners have overturned this, saying that letting land in conacre is now to be reclassified as an investment activity.
Mr Anketell said: "This means that thousands of acres of land let in conacre, which would normally be inherited tax-free, could be subject to up to 40% inheritance tax when it passes to the next generation."
Around 30% of Northern Ireland's total farmland is let out under conacre, and often the land concerned is from smaller farms.
Mr Anketell said: "Farmland attracts two tax reliefs that reduce its value to nil when it passes to the next generation, ensuring that family farms do not have to be sold to pay inheritance tax.
"One is agricultural property relief at 100% - this relief applies to the ordinary value of farmland and is unaffected by the commissioners' ruling. But where farmland has development potential but is still farmed by letting in conacre, it attracts a second relief - business property relief - also at 100% on that additional development value - or at least it did so, until now."
Mr Anketell said that the commissioners' ruling meant that business property relief would not be available, so the potential development value - and not the agricultural value of the land - could be subject to 40% inheritance tax.
He added: "The value of some farms for inheritance tax purposes could go from nil to millions, overnight, with every acre of land let in conacre liable for inheritance tax at rates of up to 40%."
Mr Anketell said that unless a successful appeal was lodged, the new ruling could mean the break-up of many family farms.
PwC also believes that the ruling could drive down agricultural land values and may also impact on the extent to which banks will be prepared to extend farming credit and to help finance farm investment.