Can a farmer preserve APR on land affected by a Wind Turbine?

 In Probate, Tax

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I was recently asked to advise a farmer on the prospect of retaining APR/BPR for IHT in the event of him agreeing to a Wind Turbine or two on his land. It certainly proved to be an interesting question – no answer, sadly, was to be found blowing in the wind on the Isle of Wight!

Will the value of the land on which the turbine is built be eligible for BPR?

Unless the landowner acts as a developer, the land on which the turbine and roadways stands will not be eligible for BPR. Usually the supplier of the turbine will own the equipment and it will be his business and not the landowner’s business. If the landowner acts as a developer with responsibility for maintaining the turbines then this would probably be a new trade and therefore eligible for BPR.

Does it matter if BPR is not available for these areas?

APR will probably be available because depending on the size of the concrete slabs on which the turbines are built usually normal farming can go on around them with no requirement to fence off (although this may depend on the terms of the proposed lease which may prevent this).

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Will the remaining land within the holding still attract APR?

The remaining land not affected by the installations will in principal still be eligible for APR (but see below) but the prospect of a substantial and long-lasting (depending on the length of the lease) income stream will give rise to an increase in the value of the whole land at the farm.

If the farmer continues to use the remaining land for agricultural purposes then it should qualify for APR but remember APR is only given against the agricultural value of agricultural property.

Integrated business?

In some cases there is a real risk that the agricultural value of the property may well prove to be less than its open market value because of the effect on the site of the introduction of a separate and substantial income stream. It is hoped that BPR will be given on the difference between the agricultural value and the open market value. To achieve this it is necessary to show that the letting activity is an integral part of the farming business.

Case law has developed in recent years and the general principle one can draw up to now is that there must be a single business with unified management in which the farming enterprise is the pre-dominant generator of income [Farmer v. IRC (1999) STC 321; IRC v George [2003] EWCA Civ 1763].

In this respect the key factors are to:

  • Ensure the wind farm is incorporated into the farm as one unit
  • Ensure integrated accounts, i.e. treating all the income from farming and wind farms as one integrated business unit
  • Ensure the business consists mainly of farming

The risk to the farmer is that if the rental income becomes greater than the net income from the farming activities then there is the real prospect of the integrated business failing to gain BPR at all due to the predominant source of income being an investment (i.e. rental income) rather than a trading source (i.e. farming).

Practice point

Care will have to be taken to ensure that the business continues to be mainly farming throughout the term of the lease. For some farmers this may prove to be impossible and then the timing of their sale of the property to achieve a capital gain at 18% on the enhanced value of the land rather than pay income tax at 20% or 40% may prove attractive if BPR was going to be lost.

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