As you would expect from a lawyer, the answer is – “it depends”!
Traditionally such a question would have had a simple and obvious answer. However with the change in the market for agricultural produce most, if not all, farmers are considering other, non-farming, income streams. In addition the number of “lifestyle” farmers is increasing and so the above question is being more widely asked and the answer less clear.
Two things have occurred within the last year that have raised the profile of this question: the introduction of the Single Payment Scheme (the “SPS”) under the revision of the Common Agricultural Policy; and the ruling of the Lands Tribunal that agricultural property relief for a farmhouse under the Inheritance Tax (“IHT”) regime would only apply to its value as agricultural property (the “Antrobus” case).
Under the SPS a farmer is defined as someone who exercises an agricultural activity. This in turn is defined as the production, rearing or growing of agricultural products, including harvesting, milking and breeding animals and keeping animals for farming purposes or keeping land in good agricultural and environmental condition (“GAEC”). This definition has had a number of consequences. These include the fact that people who keep horses on grassland can be regarded as “farmers” as can those who simply keep agricultural land in GAEC. Thus the owner of the old farmhouse with two one-acre paddocks, one of which is kept topped and the other of which is used to graze a retired racehorse is, for SPS purposes, regarded as a farmer.
However just because in one circumstance a person is regarded as a farmer, it does not follow that this will occur for all purposes. For instance in the above case if a decision is made to erect a permanent stable, planning permission would in all probability be required. Generally, permission is not required for the erection of agricultural buildings, but the planning authorities do not regard the keeping of horses as an agricultural activity.
The Antrobus case considered to what extent a farmhouse could attract 100% agricultural relief under IHT. The courts held that any value in excess of a farmhouse’s agricultural value would attract tax at the rate of 40%. In addition the relief would only apply if the owner, or spouse, was farming land on a “day to day” basis, or was doing so prior to retirement. Thus there is a chance that a “lifestyle” farmer, who has a large house, with say 50 acres, all of which is farmed by a contractor and on which no day to day management decisions are made, could end up with the entire value of the farmhouse attracting IHT, even though it was, in fact, associated with land that was being worked.
A traditional farmer growing crops or rearing animals is treated as having a business by HM Customs and Revenue. That farmer could decide to become a park-keeper, keep the land in GAEC and simply take the SPS. In such circumstances, although a farmer for CAP purposes, the Revenue could take a contrary view and deem any income as unearned and any agricultural property relief on the farmhouse, even if the house was commensurate with the associated land, could be at risk.
There are other situations where an activity could be regarded as farming by one authority but not by another. The above are illustrations of how this might arise. Therefore if you own land and carry out any form of activity on it, I would strongly recommend keeping a weather eye on how that activity is going to be regarded and by whom. If there is any doubt whatsoever, we’d be happy to advise.
