A recent tax case has cast doubt on the ability of land owners to claim capital gains tax and inheritance tax reliefs on farmland they let on a seasonal basis.

The “Evelyn” case in Northern Ireland involved the long established practice there of conacre lettings. Approximately a third of agricultural land in Northern Ireland is let in conacre – land let on a seasonal basis to a tenant.

In this case, following a period of letting, the farmer, Mrs Evelyn, had sold the land, and claimed business asset taper relief on the gain that arose (the sale was in 2004/2005 before taper relief was abolished). The claim for taper relief was successfully challenged by HM Revenue and Customs (HMRC) on the basis that Mrs Evelyn (or the partnership she was involved in) had not occupied the land wholly or mainly for the purposes of husbandry. She or her partnership had no active involvement with the land, and the tenant was the actual farmer of the let land. Therefore, the letting did not constitute a trade and no business taper relief was allowed.

So what is the relevance of this ruling for situations existing today in Scotland and elsewhere in the UK?

Tax law and practice does allow for land to be let on a seasonal basis (less than 365 days with no right of renewal), and for the owner to retain capital tax reliefs such as entrepreneurs relief for capital gains tax and agricultural property relief for inheritance tax. What the land owner must now be very careful about is the terms of the lease, and their responsibility for the continued husbandry of the land. The Evelyn case failed because the land owner was not involved in the land. To retain reliefs the owner should be responsible for such things as drainage, hedge cutting, and other maintenance as a minimum, and perhaps even fertilizing, seeding etc to be more sure.

If you let land on a seasonal basis please speak to us about this issue to ensure that valuable tax reliefs are not put in jeopardy.