Posted on 24 June 2016
Landowners who permit others to take the grass crop from their land under a grazing agreement must play an active role if they are to secure valuable tax reliefs a Tax Tribunal ruled in Allen v HMRC (2016) TC 05100.
Case law has long indicated that landowners must physically manage the land to qualify for business tax reliefs and “model” grazing licences exist to assist in achieving this. However, there is now a clear First Tier Tribunal decision on Capital Gains Tax (CGT) setting out what might be expected to happen in practice.
In order to be farming (and therefore trading) it is essential that the owner remains in occupation of the land and carries out acts of husbandry (or produces a crop). Central to the Tribunal’s decision in Allen v HMRC were the actions of the landowner and the grazier, not just the terms of the agreement.
Mr Allen owned about 10 acres of land which was let to a neighbour for seasonal grazing and silage from March to November each year. However, he also used the land as lairage for animals sold in the market year-round and grazed it sensitively over the winter. Importantly, the Tribunal found that Mr Allen had an awareness of the land, its condition and the need to maintain it which went beyond what would be expected of a property investor.
Mr Allen (or others on his behalf) maintained the land and fences, supplied water and fertiliser for the land (the tenant was not permitted to use his own fertiliser), and cut the weeds and hedges.
HMRC asserted that the grazier had sole occupation of the land, saying that if the grazier was in occupation the owner could not be. The Tribunal rejected that on the evidence before it. Had Mr Allen not shown that he both occupied and undertook responsibility for husbandry of the land he would not have won the relief.
Although the case related to CGT business asset taper relief – which was abolished in 2008 – the decision is still relevant as guidance for current CGT business reliefs such as entrepreneurs’ relief and rollover relief as well as potentially for inheritance tax reliefs.
It is therefore relevant to any landowner with land let on grazing or cropping agreements. Owners are advised to review both the legal agreement and the substance of what happens on the ground to ensure that they are doing enough to qualify for valuable tax reliefs.
The details of the tribunal can be seen at: