IHT implications of putting holiday units on land you have not yet inherited....

farmerm

Member
Location
Shropshire
My wife would like to set up a holiday accommodation business.. what complicates it is neither my wife or I own the land. I farm in partnership with my aging parents but the ownership of the farm is outside the partnership and lies in the hands of my parents. Having been caught out before I am concerned that if we are not careful in applying for a change of land use from agriculture to perm structure or alternatively by putting structures within the residential curtilage of the farm house, we might create some future higher IHT liability that would take the shine off the new business. I know my wife would much prefer to operate the business independently from the farm partnership but my thought would be if may be more IHT efficient if the new business was run within the farm partnership. Inside the partnership any APR lost would be offset by BPR, outside the partnership and I think HMRC would view my parents ownership of the accommodation site as investment property rather than trade with no IHT relief. Flip side is inside the partnership she would then have to charge VAT but we could also recover VAT on the costs... Thoughts welcome....
 

flowerpot

Member
No idea, you need specialist advice.

However, I know someone who runs a holiday letting business and the farm is tenanted. One building was converted to some self contained letting rooms, having an ensuite and kettle, coffee making machine, so breakfast was serving in a separate room (something to do with VAT I think). I have no idea what the financial arrangements were, although I think that the tenants paid for all the building and work and alterations even though they were adding value to the farm.

Similar situation?
 

Grass And Grain

Member
Mixed Farmer
Location
Yorks
No idea if this will work- but how about getting a long lease for the ground where the holiday accommodation will go, 999 years at £1/annum, effectively devaluing the land to near zero. Is that permissible? Or would you be judged to be purposefully avoiding tax?
 

midlandslad

Member
Location
Midlands
Why not just rent the field to your wife’s business, which then undertakes the works on the land. When valued it will be subject to a lease and all the improvements will be undertaken by the tenant and therefore disregarded.
 

farmerdan7618

Member
Livestock Farmer
Location
Somerset
In my view IHT is a secondary issue here. Bearing in mind that anything constructed on someone else's land technically belongs to them (unless you take it away again, which means temporary structures).

Your wife would be investing in your parents property, but would prefer it to be outside the farm partnership - in my view, if the land isn't to be transferred, this is a non starter.

Of course if you do go ahead, your parents need specific tax advice, as the IHT will depend on other parts of the estate - e.g. is the business close to the boundary for BPR, is the main residence nil rate band needed and would an increase in value restrict it.
 

farmerm

Member
Location
Shropshire
In my view IHT is a secondary issue here. Bearing in mind that anything constructed on someone else's land technically belongs to them (unless you take it away again, which means temporary structures).

Your wife would be investing in your parents property, but would prefer it to be outside the farm partnership - in my view, if the land isn't to be transferred, this is a non starter.

Of course if you do go ahead, your parents need specific tax advice, as the IHT will depend on other parts of the estate - e.g. is the business close to the boundary for BPR, is the main residence nil rate band needed and would an increase in value restrict it.
I don't want to be the one that tells my wife it is a none starter.. :bag: Specific tax advice is expensive but I guess money well spent in the end.. I suppose what I am hoping from here is to at least be able to go into such a meeting with half a clue so we can shave 20min of time off the bill.. :ROFLMAO: I wouldn't be surprised if getting the professional answer to this question costs four figures and a kidney... :oops: The proposed structures would be pre-assembled so in theory could be disconnected from services and be picked up and moved. The necessary infrastructure would be less mobile though..

What has just crossed my mind is that a transfer of land and the change of use could be for a pretty modest area, it would only need a small corner of the parcel not the whole parcel as I was originally thinking. Even if my parents pass within 7 years the taxable value of the plot, even if HMRC claim the uplifted value from agricultural to residential not be a prohibitable high potential IHT if the area is modest enough... Need to do some measurements I think.. Agricultural value of the parcel is probably £6k-10k/ac amenity pony paddock value could be £14K-20K/ac? Anyone have a suggestion as to the land value per ac with change of use to holiday accommodation? No doubt HMRC would want try claim the higher valuation of the new land use type at time of death rather than the agricultural value at time of transfer. What valuation is building land £100K/ac £200K/ac more?
 

Still Farming

Member
Mixed Farmer
Location
South Wales UK
I don't want to be the one that tells my wife it is a none starter.. :bag: Specific tax advice is expensive but I guess money well spent in the end.. I suppose what I am hoping from here is to at least be able to go into such a meeting with half a clue so we can shave 20min of time off the bill.. :ROFLMAO: I wouldn't be surprised if getting the professional answer to this question costs four figures and a kidney... :oops: The proposed structures would be pre-assembled so in theory could be disconnected from services and be picked up and moved. The necessary infrastructure would be less mobile though..

What has just crossed my mind is that a transfer of land and the change of use could be for a pretty modest area, it would only need a small corner of the parcel not the whole parcel as I was originally thinking. Even if my parents pass within 7 years the taxable value of the plot, even if HMRC claim the uplifted value from agricultural to residential not be a prohibitable high potential IHT if the area is modest enough... Need to do some measurements I think.. Agricultural value of the parcel is probably £6k-10k/ac amenity pony paddock value could be £14K-20K/ac? Anyone have a suggestion as to the land value per ac with change of use to holiday accommodation? No doubt HMRC would want try claim the higher valuation of the new land use type at time of death rather than the agricultural value at time of transfer. What valuation is building land £100K/ac £200K/ac more?
Also Captial Gains ,Valuation Office and Non Domestic rates angles also???
 

Still Farming

Member
Mixed Farmer
Location
South Wales UK
So many minefields in the tax systems and yet people like the Donald seen to manage to pay no tax at all :( Sometimes it is a wonder why anyone ever bothers start up a new venture...!
Maybe shepherd's huts on wheels moved about , not permanent or in any one field , no services or all portable and like mentioned just carry on ,nothing permanent, nothing in writing, no commitments then to anyone allegedly???
 

farmerdan7618

Member
Livestock Farmer
Location
Somerset
Are you and your wife prepared to invest on the basis that it could be taken from you, or left elsewhere?

Tax can be got over, specific advice will cost a bit, but the way to get the most out of that advice is to have everyone agreed on what you want the final outcome to be first.
 

D14

Member
I don't want to be the one that tells my wife it is a none starter.. :bag: Specific tax advice is expensive but I guess money well spent in the end.. I suppose what I am hoping from here is to at least be able to go into such a meeting with half a clue so we can shave 20min of time off the bill.. :ROFLMAO: I wouldn't be surprised if getting the professional answer to this question costs four figures and a kidney... :oops: The proposed structures would be pre-assembled so in theory could be disconnected from services and be picked up and moved. The necessary infrastructure would be less mobile though..

What has just crossed my mind is that a transfer of land and the change of use could be for a pretty modest area, it would only need a small corner of the parcel not the whole parcel as I was originally thinking. Even if my parents pass within 7 years the taxable value of the plot, even if HMRC claim the uplifted value from agricultural to residential not be a prohibitable high potential IHT if the area is modest enough... Need to do some measurements I think.. Agricultural value of the parcel is probably £6k-10k/ac amenity pony paddock value could be £14K-20K/ac? Anyone have a suggestion as to the land value per ac with change of use to holiday accommodation? No doubt HMRC would want try claim the higher valuation of the new land use type at time of death rather than the agricultural value at time of transfer. What valuation is building land £100K/ac £200K/ac more?

I've a friend who has just sold 150 acres over the last 3 years in 3 different lots. In his pocket before tax is £500,000/acre. It started off at £1 mill/ac but the landowner has to pay for the road infrastructure and dirty water system etc etc so after all that is accounted for it brings you back to about half the original value. He was in talks with multiple national house building companies about this 150 acres and they were all offering the same money.
 
I've a friend who has just sold 150 acres over the last 3 years in 3 different lots. In his pocket before tax is £500,000/acre. It started off at £1 mill/ac but the landowner has to pay for the road infrastructure and dirty water system etc etc so after all that is accounted for it brings you back to about half the original value. He was in talks with multiple national house building companies about this 150 acres and they were all offering the same money.
whats he planning to do with the 75 million?
 

Nearly

Member
Location
North of York
I've a friend who has just sold 150 acres over the last 3 years in 3 different lots. In his pocket before tax is £500,000/acre. It started off at £1 mill/ac but the landowner has to pay for the road infrastructure and dirty water system etc etc so after all that is accounted for it brings you back to about half the original value. He was in talks with multiple national house building companies about this 150 acres and they were all offering the same money.
Entrepreneur relief would be one way?
 

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