Why does “Farming status” matter?
“Farming status” is a very important question for those who ‘farm’ their land through grazing or cropping licenses, contract or share farming arrangements. HM Revenue and Customs are often raising this question – whether you are farming or not can have significant tax consequences.
The case of John Carlisle Allen v HMRC  TC05100, referred to in our summer 2016 newsletter, was such a case where this question was asked. The case concerned a landowner in Northern Ireland who was letting land under a conacre arrangement (similar to a grazing license). The dispute concerned capital gains tax (CGT) and essentially whether the landowner was selling an investment asset or a business asset. In the latter case relief from CGT would apply.
Securing landowner ‘farming’ status gives several tax advantages. These include the treatment of the income as earned income, allowing the landowner to deduct various expenses against the income, and to claim the VAT back. The farm will qualify for CGT rollover, holdover and entrepreneurs’ relief, and for inheritance tax purposes the owner may still be in agricultural occupation of the farmhouse. In addition, business property relief will also be available for any non-agricultural value.
To qualify as a farmer attention needs to be paid to the legal agreement and the activities the landowner performs. To be farming the landowner must be in occupation of the land and the occupation must be for the purposes of husbandry. The approach by the courts is to determine the primary use of the land and then to ascertain the identity of the person who had that use. In case law, the courts have been prepared to accept the landowner as the person with the primary use provided he conducts some activities which are husbandry.
For example, a grazing license should provide that the landowner is responsible for growing the crop of grass and the landowner should actively perform some activity on the land. This would include fertilising, seeding, and controlling weeds on the land. Mere acts of maintenance, such as hedge cutting, would not be treated as husbandry.
It is also important that there is always some business risk for the landowner. A guaranteed income every year would not give such risk.
Lets look at the evidence
Keeping evidence of the activities performed is vital. A diary should be kept recording meetings and conversations held with the third parties as well as meeting notes where the landowner has directed for certain activities to be carried out. Proper invoicing from the supplier of inputs is also crucial.
In essence, if you wish to protect your farming status, and you are relying on such arrangements, you should take advice now. The agreements and the relationship between the landowner and third party should be reviewed.
If you would like any further advice or information regarding your farming status,
please contact firstname.lastname@example.org, or visit our agricultural page: