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Rural Taxation Revision, Staffs, 29 July 2015


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Slides for a seminar held by the West Midlands Agricultural Valuers Association at Rodbaston College, Staffordshire on 29 July 2015.
Their purpose is to support candidates for the national exams in their revision of taxation

Published in: Real Estate
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Rural Taxation Revision, Staffs, 29 July 2015

  1. 1. Charles Cowap MBA MRICS FAAV Taxation Revision CAAV Tutorial Staffordshire 29 July 2015
  2. 2. Charles Cowap MBA MRICS FAAV The syllabus Taxation - framework of, valuations for and relevant impact of Income Tax, Corporation Tax, Capital Gains Tax, Inheritance Tax, Stamp Duty Land Tax, Value Added Tax, business rates and other national and local taxation together with relevant reliefs and exemptions
  3. 3. Charles Cowap MBA MRICS FAAV Past written papers: 2010-2014 2010 • What principles were established in the Inheritance Tax case, HMRC v Hanson?
  4. 4. Charles Cowap MBA MRICS FAAV You have been asked to advise a 55 year old widowed client with two grown up children. He owns a farm that comprises 500 acres of arable land and 200 acres of woodland, a very substantial 10 bedroomed house, a set of modernised farm buildings and four cottages. One of these cottages is occupied by a full time farmworker, one by a retired farm worker and the others are let on ASTs (SATs in Scotland) to non-agricultural tenants. He also has an Agricultural Holdings Act tenancy of a further 500 acres of bare land. He has no other land or property. He has heard on the grapevine that he doesn’t have to worry about planning for Inheritance Tax because it will all be free of tax as all his wealth is in agricultural property. Your client is a full-time in hand farmer with the farm office in the main house He has owned the farm for ten years Valuations have been given for the farmland and farm buildings £3.5 million the woods at £400,000 the main house at £1.5 million the cottages at £200,000 each The value of his other heritable assets amounts to £250,000 of which £150,000 is in his farming business and £100,000 is in personal possessions, money, investments and chattels Prepare notes to advise him on his likely exposure to Inheritance Tax, identifying in particular the following: 1. Outline the basic rules of Inheritance Tax and the principal reliefs from IHT that might be available to him. (7 marks) 2. For Agricultural Property Relief, detail the more relevant court decisions, explaining how each of these might affect the amount of relief available. (6 marks) 3. Calculate the IHT liability in his current situation if he were to die suddenly (based on the facts below). 4. Advise on two measures he might take to reduce this tax liability. (2 marks)
  5. 5. Charles Cowap MBA MRICS FAAV You act for an elderly and well-funded landowner, with a son and a daughter, who owns 1 hectare of arable land on the edge of a large village which the Local Planning Authority has indicated, in its latest draft housing allocation, is a preferred site for residential development. A developer has asked your client for a meeting to discuss potential joint action to achieve mutual advantage. 1. Bearing in mind your client’s age and wish to maximise financial return, provide bullet points on the alternative courses of action available and likely proposals/suggestions a Developer might come up with: a) Assuming a 0 - 5 year time frame for realising a return and, in the alternative (8 marks) b) Assuming a 5 - 15 year time frame for realising return. (8 marks) 2. Write brief notes on: any taxation implications for clients of a successful outcome in achieving permission or a sale with permission for the development what tax minimisation strategies might be employed. (4 marks)
  6. 6. Charles Cowap MBA MRICS FAAV 2013 HMRC has agreed that your firm’s deceased client’s house is a farmhouse for Inheritance Tax purposes. Prepare notes to brief your principal, stating relevant case law, on: a) what is required for it to be of a “character appropriate”? b) what basis of valuation is to be adopted?
  7. 7. Charles Cowap MBA MRICS FAAV The owner of a 300 acre farm has asked your advice in respect of potential Capital Gains Tax liabilities. He has told you that the farm comprises: 300 acres arable land valued at £2,250,000 6 bedroom farmhouse £ 600,000 Pair of cottages occupied by farm workers £ 300,000 Traditional wooden farm buildings £ 150,000 £3,300,000 and that • he purchased the farm in 1982 for £220,000 • he is the sole owner and farms as a sole trader • he is a higher rate tax payer • his wife does not work and has no taxable income • he will have no other chargeable gains during this tax year He is considering two options: a) to retire and sell the whole farm b) sell part of the farm retaining the farmhouse, one cottage, the traditional buildings and 80 acres of land which he will continue to farm He has asked you: 1. what is Capital Gains Tax? How is it calculated? What are the rates? What are the main reliefs? (7 marks) 2. for each of options a) and b), to set out the different tax treatment of the assets and describe the reliefs available (6 marks)
  8. 8. Charles Cowap MBA MRICS FAAV 2012 Entrepreneurs’ Relief– what is it and how does it work?
  9. 9. Charles Cowap MBA MRICS FAAV Arthur Bailey has recently passed away and as a bachelor, has left his Estate to his nephew who is seeking your advice on Inheritance Tax. Arthur Bailey farmed Box Farm in hand. The farm comprises 50 hectares of arable land, with a large 6 bedroom farmhouse, range of modern farm buildings near to the house and a bungalow which has an Agricultural Occupancy Restriction but has been let on an Assured Shorthold Tenancy (Short Assured Tenancy in Scotland) for the last 10 years to a teacher. The only other assets in Arthur’s Estate are cash savings totalling £150,000. The nephew wants to meet you. Please prepare briefing notes for that Meeting setting out: a) The treatment of each of the assets within Arthur’s Estate for Inheritance Tax purposes and schedule what reliefs each of the assets Might qualify for and why. (18 marks) b) What additional information would help you in providing this advice? (2 marks)
  10. 10. Charles Cowap MBA MRICS FAAV 2011 Taxation Lord S is concerned as to whether or not he has any liability under Stamp Duty Land Tax as a result of inheriting the estate. Advise Lord S when is it payable, by whom, and at what rates, whatever the tenure. (4 marks)
  11. 11. Charles Cowap MBA MRICS FAAV You have been asked to advise a farmer on the Capital Gains Tax implications for him of selling a barn for which he has received planning consent for conversion to Residential use. The relevant facts are as follows: • He owns a 500 acre farm which he purchased in 1975. The title is in his own name and not in a company. He farms as a sole trader. • The barn would have been valued at £2,000 in March 1982 and is now valued with planning consent at £300,000. Until now it has been used only for agricultural purposes. • He proposes to sell the barn unconverted but with the benefit of planning consent. • He proposes to use the proceeds of the barn sale to repay borrowing. • After selling the barn, he proposes to carry on his farming business exactly as before. • He is married. • With other income, he is a higher rate income tax payer Set out your advice to him on the likely CGT implications of his proposed sale on the following basis: a. What are the basic rules on Capital Gains Tax that apply to such a sale (8 marks) b. Calculate the tax he is likely to have to pay in the above scenario assuming current Tax rates and standard tax free allowances (6 marks) c. There are other reliefs available for CGT. Give brief notes on all reliefs and discuss what changes to the above circumstances your client could contemplate in order to qualify for some of these reliefs?
  12. 12. Charles Cowap MBA MRICS FAAV New developments in taxation • Deeds of Variation Review – See also Ilot v Mitson [2015] EWCA Civ 797 • IHT Residence Exemption – Starts 2016 at £100k/person – Rises to £175k by 2020/21 – Children – lineal descendents – Restricted over £2 million
  13. 13. Charles Cowap MBA MRICS FAAV New developments in taxation • Annual Investment Allowance – Down up down up again – £200k from January 2016 • Mortgage interest relief for landlords – Down to basic income tax rate by 2020 – Progressively – But Rent a Room up from £4,250 to £7,500
  14. 14. Charles Cowap MBA MRICS FAAV New developments in taxation • Profit averaging for farmers – Now two years – Extend to five years – Consultation on how this will work • Watch Woodland Taxation • Green v HMRC [2015] UKFTT 0236 (TC) – Another furnished holiday letting – Another investment property – Five s/c units in N Norfolk – A welcome pack, linen, towels, furniture, electricity, wi-fi, cleaning – ‘relatively minor’, ‘ancillary to the provision of accommodation’
  15. 15. Charles Cowap MBA MRICS FAAV Ham v Ham [2013] EWCA Civ 1301 • Farming partnership – Young John leaves family partnership – Mum and dad elect to buy out share • Calculation of ‘net value’? – John had introduced no capital – Land shown at book value – Book value or market value? • Market value – Need for clarity in partnership agreements
  16. 16. Charles Cowap MBA MRICS FAAV Question Time
  17. 17. Charles Cowap MBA MRICS FAAV Contact Details Translating new knowledge for rural professional practice   07947 706505 Twitter: @charlescowap Blog: Slideshare: