Farmers and land owners are always looking at ways to increase their income stream from land and buildings.
Over the years there are examples of land and farm buildings being made available for a diverse range of non-agricultural uses.
This article does not address residential use but looks at trade business and activities which includes storage/warehousing, light industrial workshops, offices, cafes, shops and retail outlets and also making premises available for use by organisations such as clubs and associations for meeting rooms and even recreational activities.
There are three particular aspects that come to mind immediately when looking at this type of diversification. The first is that relating to security of tenure that tenants may obtain. If a tenant gains exclusive occupation of the property and is carrying out a trade business or activity then unless correct legal documentation is entered into the tenants may gain protection of occupation under the Landlord and Tenant Act 1954. The landlord might only be able to insist on obtaining vacant possession if the landlord needs to occupy and use the premises for the landlord’s own purposes or there is a serious proposal for redevelopment for vacant possession is essential. If a tenant is in breach of tenant’s covenants and obligations then there may be other grounds to obtain the vacant possession in any case.
The second point is in respect of Local Authority non-domestic rating. At present agricultural land and buildings are generally exempt. With a change of use occurring from agricultural it is likely non-domestic rates will become payable.
The third consequence of such diversification relates to the treatment of the land by HM Revenue & Customs with regard to Capital Gains Tax and Inheritance Tax. If the receipt of rent is seen as pure investment income as opposed to the landlord being involved in a trading business activity then there will be no Capital Gains Tax reliefs available if the property is sold with a capital gain. A landlord may be able to demonstrate that the letting of the building was part of an overall business plan and the rental income is to support more general farming activities. It is a question of proportion.
Inheritance Tax Agricultural Property Relief and Business Property Relief are available to help farmers and land owners on death. Where these reliefs are available they are very valuable and can avoid hefty tax burdens. However as with Capital Gains Tax if premises are seen as purely investment property then these Inheritance Tax reliefs may well not be available.
Similar thought processes will apply to other uses such as solar farms, wind turbines, telecoms masts. When considering any kind of diversification it is well worth spending the time discussing this with lawyers, accountants and land agents as appropriate to work out how to best structure the intended schemes.
For further advice please contact Partner & Head of Agricultural & Rural Services Steven Corfield on 01743 266268 or firstname.lastname@example.org.