Tax ruling could hit conacre

By James Campbell

A recent highly publicised ruling on the Inheritance Tax liability relating to land let in conacre has left farmers in Northern Ireland wondering how they - or their successors - might be affected.

The short answer is that no one can say for sure that the ruling of the Special Commissioner will have major implications for very many land owners.

The Special Commissioner, Charles Hellier, ruled that land let in conacre in the case under appeal was an investment activity rather than part of the business of farming. This was a case in which the land concerned had development value of over £5 million and the owner of the land had been ill and had not been in Northern Ireland for about seven years prior to her death.

Landowners who currently farm their land should not expect this ruling to make any difference in the way they are regarded for tax purposes, continuing to qualify for 100% Agricultural Property Relief in any assessment for Inheritance Tax (IHT).

A narrow view of the case would also suggest that it is only conacre land on which there is development value that would fail to fully qualify for Agricultural Property Relief or Business Property Relief in its assessment for IHT liability.

But the whole issue of the tax treatment of land let in conacre has become a huge 'grey area' with no-one absolutely certain what constitutes a business of conacre farming.

Accountants are advising landowners to be as much 'hands on' in relation to the farming of the land as possible in order to be reasonably sure of being able to avail of the various tax benefits attaching to farmland for purposes of Inheritance Tax or Income Tax. The Commissioners noted that it is a matter of degree at what point conacre is a farming activity rather than an investment activity.

Certainly, in the wake of this ruling, anyone with land that has development value would be inclined to farm it rather than let it out in conacre, if only to minimise possible IHT liability.

According to Nigel Anketell of PricewaterhouseCoopers, this case did not address the question of Agricultural Property Relief - it was only looking at Business Property Relief. Anketell says the next step in relation to the recent ruling is 'imponderable'.

He says it depends whether or not the taxpayers in the case decide to appeal to a Court. He believes that the case has opened a 'can of worms' that Her Majesty's Revenue and Customs (HMRC) was not seeking to open and suggests that it would be helpful now for HMRC to clarify the situation with a guidance note.

Anketell also believes that the ruling could have implications for the system of short term grass letting (agistment) in Britain and that could bring some major players into the legal wrangle. There are a lot of 'what ifs?' raised by the ruling, he says.