Buying a farm

Published on 10th September 2019

Buying a farm is well-established inheritance tax planning for the successful business person, while existing farming families sometimes have the opportunity to buy out a neighbour. In either event, income tax relief needs to be maximised.

With 100% Annual Investment Allowance currently available on up to £1m of expenditure, it is important to identify qualifying plant, machinery and integral features included in the purchase and to agree their value. That value should be negotiated before exchange of contracts and documented in a ‘Section 198 election’ which is signed alongside the purchase contract.

Eligible plant can include fixed grain drying equipment, slurry storage, silage pits, feed bins, milking parlours, feed systems, electrical systems, ventilation and lighting. In one recent tax tribunal case, the whole of a grain store was held to be eligible plant because the drying equipment was so integrated with the fabric of the building.

Annual Investment Allowance can be used to create a trading loss that will be carried forward to offset future taxable profits; perhaps for several years.

Depending on the circumstances, the purchase of a farm may also facilitate rollover relief from CGT on the sale of different property and provide future shelter from inheritance tax. In such circumstances the precise identity of the purchaser (e.g. particular individual(s) or partnership) can be critical.

A note of caution on the funding of the purchase too: while bank interest payments will qualify for income tax relief, loan repayments will not. Having to service debt repayments out of taxed income can be quite a millstone for families who borrow heavily to purchase land. In some cases, using a family company or pension fund for the purchase can reduce the tax cost.

If you are in the fortunate position of planning to buy a farm, please speak to us when you are instructing your solicitor (if not before).