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Will Smaldon of Stags Professional Services outlines the measures farmers must take in order to benefit from inheritance and capital gains tax relief.
Many farmers use grazing licences and contract farming agreements in order to obtain relief from inheritance tax and capital gains tax.
If used correctly, grazing and contract farming agreements will allow a farmer to comply with the relevant tax reliefs available for agricultural properties. However, we are increasingly seeing occupancy arrangements being used incorrectly, putting the farmer at risk of not qualifying for the reliefs.
It is unlikely that a grazing licence on its own will be sufficient to prove that a farmer is engaged in farming activity. To benefit from the tax status of being a ‘farmer’, the farmer must be exposed to an element of financial uncertainty and risk. Being exposed to fluctuating market values and crop yields are elements of risk that typically distinguish a farmer from a landlord.
Contract farming agreements are being put under ever increasing scrutiny by the revenue. Even more important than the written agreement is what the ‘farmer’ is actually doing and how he or she is being rewarded for their farming activities. The agreement will simply record those arrangements with specific operations and field management tasks accurately listed as a contract between the two parties.
If a farmer is using a grazing licence or contract farming agreement as part of a tax planning strategy then it is important to take further advice from your accountant, lawyer or land agent. There are simple things that you can do to help to demonstrate ‘in-hand’ farming.
For any help or advice with regard to tax planning, please do not hesitate to contact Stags Professional Services to be put in touch with your local professional.