Knock of effects of the Budget
As many professionals are no doubt being contacted following the budget, creative ideas start to be questioned. I have been told more than once in the last two weeks “we are going to do a long-term Farm Business Tenancy (FBT)”, my response “have you spoken to your accountant?”
STRUCTURE
The changing of the structure of any business will have implications and consequences to think through, and as rural surveyors, we need to know and understand the legislation, an accountant will know the wider detail.
Some see the option of entering into a long term FBT as the answer to possibly decreasing the value of the agricultural holding and, depending on the terms granted, it may do this.
It is however worth considering what other implications there could be if you went down that route
ARMS LENGTH AGREEMENTS
Firstly, it would have to be an arm’s length transaction, you can’t be the landlord and the tenant at the same time, but a limited company or a formal partnership could be the tenant if the property was owned by the family (the Landlord)
The terms of that tenancy would have to be “commercial terms” – market rent with monies paid by the Tenant to the Landlord, thus a cost then to that trading business and then an income to the Landlord. Another tax consideration has been created.
The market rent for an equipped farm holding could be significant, depending on the infrastructure in place. Although I will be cautious when quoting figures! In some circumstances, the repairing obligations of the tenancy could be put on the Tenant known as a “full, repairing and insuring basis”, and in this case, the tenant is then liable for everything.
SDLT
Depending on the term of the agreement and the rent being paid over that period, Stamp Duty Land Tax could be payable (another tax consideration!) For example at 20 year tenancy at £7,500 per annum would give rise to a SDLT bill.
FAMILY MATTERS
There is also then the issue that if family members were perhaps to fall out with one another during the tenancy, legally that agreement is in place until it terminates or is surrendered by agreement. If there are break clauses then technically the agreement can be terminated earlier and therefore is not as long as it says on the first page of the Tenancy. The transferring of land to a non-farming family member and then renting it back could be another option and may be eligible for agricultural property relief once it is held for 7 years, however with all of this, taking advice from a specialist agricultural accountant is key.
As rural Chartered Surveyors we are able to advise on the most appropriate agreements and the value of the property.
In the first instance we would recommended talking to your accountants and solicitors.