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The Importance Of Muck And Who Spreads It

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Julie Butler - Expert Author

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 26 June 2014

The person who carries out the task of fertilising (“muck spreads”) the land can help decide the ability of the taxpayer to claim Agricultural Property Relief (APR) on the farmhouse and Business Property Relief (BPR) on the land.

It is official that HMRC are looking more closely at inheritance tax (IHT) reliefs. One of the points HMRC seem to be paying close attention to is who fertilises the land, or in basic terms who “spreads the muck” to prove the farmhouse and land are occupied for the purposes of agriculture.

Income from grass lands

One of the best practical examples of where the border lies between farming and landownership is the treatment of income from the grazing of grass lands. The owner of grass lands who manages to secure that the income therefrom be treated as farming income can obtain several tax advantages. These will include the treatment of the grazing income as trading income, rather than as non-trading (investment) income from a property business. A key factor will be how the income will be reflected on the individual Tax Return. The landowner will additionally be able to claim that the grass lands are an asset occupied and used for the purposes of his farming business and hence qualify for capital gains tax rollover relief. The grass lands will be a ‘relevant business asset’ and hence can potentially qualify for capital gains tax entrepreneurs’ relief, an important consideration for the farmer who, after the cessation of more intensive farming activities, allows others to graze his land for a while, whilst he possibly looks for a permanent place to live in his retirement.

Non-investment business

Where the owner of the grass lands is treated as farming this land then it is likely that the owner will be conducting a ‘non-investment’ business for IHT BPR purposes (see the case of McCall (personal representatives of McClean, decd) v Revenue and Customs Comrs [2008] STC (SCD) 752 and [2009] NICA 12). HMRC have accepted that a landowner who continues to occupy a farmhouse on a farm which is grazed by others may still be in agricultural occupation of the farmhouse, provided the income from grazing is farming income and the landowner conducts some activity on the land in connection with the provision of the grazing rights. Such land can potentially qualify for relief by satisfying the ownership/occupation requirements of IHTA 1984 s 117(a) and (b). If, on the other hand, the grazing income is classed as rental income, and the landowner conducts no other farming activities, then his continued occupation of the farmhouse will not be for agricultural purposes with the result that any previous entitlement to APR could be lost. Protection must therefore be put in place to protect reliefs.

For VAT purposes, grass lands which the landowner is regarded as farming himself will normally result in the supply of grass being a zero-rated supply.

Scrupulous attention to the grazing agreement

The landowner who wishes to secure these CGT and IHT advantages must pay scrupulous attention to the nature of the grazing agreement and the activities he contracts to perform. The statutory definition of ‘farming’ for both income tax and corporation tax purposes has been examined at length and they require that in order for the landowner of grass lands to be farming, he must show he is in occupation of those grass lands and that his occupation is for the purposes of husbandry. As all farming is treated as the carrying on of a trade (ITTOIA 2005 s 9(1) and CTA 2009 s 36(1)) a landowner who manages to establish that he is farming land, is automatically treated as carrying on a trade with the land as a capital asset employed in that trade. In determining whether land is being occupied by a farmer, the approach of the courts has been to determine the paramount use of the land and then to ascertain the identity of the person who had that use (see Back v Daniels (1924) 9 TC 183 and Dawson v Counsell (1938) 22 TC 149).

Seasonal grazing

In the case of seasonal grazing of grass lands, the courts have been prepared to accept that the landowner can be the person with paramount use of the land. Hence, provided the landowner conducts some activities which are husbandry in connection with that use, the landowner can be regarded as farming the land. Thus in IRC v Forsyth-Grant (1943) 25 TC 369 it was noted by Lord Carmont (at page 379) that ‘…the laying down of grass in suitable parks, the manuring of the land so as to produce a good crop, and the arranging for the seasonal eating-off the grass by cattle brought on to the land, are operations of husbandry. The parks…are…being used for the purposes of husbandry…by the proprietor who is occupying them…’ Similarly, Lord Fleming (at page 376) observed ‘…The growth of grass on a grass park does not require cultivation in the same sense as grain crops do, but such agricultural operations on the lands as are necessary to promote its growth, namely, manuring, are performed by the [landowner] and not by the grazier. On the assumption that the [landowner] is the occupier, the agreement between him and the grazier may be regarded as the sale of a growing crop rather than as a let of the lands…’ In this case the landowner was regarded as being in occupation. The landowner was regarded as growing a crop, ie, the grass; he performed actions of husbandry in connection with growing that crop such as manuring and the laying down (ie, seeding); and only seasonal rights were granted so that the grass could be eaten as animal food.

Let without any restriction to usage

By contrast to Forsyth-Grant, in two further Scottish cases (Mitchell v IRC (1943) 25 TC 380; Drummond v IRC (1951) 32 TC 263) the courts held that the landowner was not farming the grass lands. In the Mitchell case (heard on the same day as the Forsyth-Grant case) the court held that the landowner was not the occupier of the land as the lands were let without any restriction as to their usage and hence, whatever agricultural activities the landowner performed, the landowner could not be a farmer in respect of the lands in question. In the Drummond case it was noted that top-dressing was not applied to the land by the owner and it was found that the landowner was not a farmer primarily because the grazing agreements were in reality a species of tenancy, rather than merely seasonal lets of grazing. Certainly if the grazing agreements be regarded by the court as a tenancy, this will result in the landowner not being regarded as a farmer, a point that was emphasised in the more recent case of Bennion v Roper (1969) 46 TC 613 where the court was influenced by a document that did not form part of the stated case and concluded that the grazing agreement was ‘…a perfectly ordinary tenancy agreement…’.

Grass sown in the manner of a crop

The more recent case of McCall, also confirms these principles. This was a BPR case, and consideration was given to the question when land used for grazing might be regarded as qualifying as a non-investment business. It was noted in this case that the grass being grazed had not been sown or grown in the manner of a crop (ie there were no acts of husbandry commensurate with growing the grass as a crop and accordingly no occupation for the purposes of husbandry). Under the agistment agreement used the landowner merely performed such acts of maintenance necessary to successfully exploit the land as grazing land. In particular it was noted that only the grazier not the landowner was permitted to fertilise the land and thereby maximise the growth of the grass. Care must be taken in drafting all agreements on the point of who fertilises the land.

Landowner responsibilities for fertilising, seeding and weeding

It would appear from the above precedent cases that the essential ingredients of a grazing agreement that result in the landowner qualifying as a farmer are that the landowner, and not the grazier, should be responsible for growing the crop of grass and actively perform some activity on the land. The landowner should therefore be responsible for acts of husbandry in that connection, ie, fertilising, seeding and weeding the grass lands – these are activities performed on the land and are commensurate with the husbandry operations of growing grass as a crop. The landowner should actually go onto the grass lands to perform these functions as well as being responsible for maintaining boundaries (though he may do all of this through agents acting on his behalf under agreements that are separate to the grazing agreement, but care is required as suggested below). The grazing agreement must have the hallmarks of a seasonal letting. It is preferable that the agreement be a pasturage agreement. Certainly, a farm business tenancy for grazing should not be employed, if the landowner wishes to be a farmer. That is because such a tenancy will confer rights of exclusive possession on the grazier and hence the landowner will not be in occupation of the grass lands. A tenancy also means the landowner is occupying the farmhouse for the purposes of agriculture.

Growing the crop of grass

In order to achieve maximum tax reliefs, it is the landowner and not the grazier who is responsible for growing a crop of grass. It is suggested that the Special Commissioner’s decision in Wheatley’s Executors v IRC [1998] STC (SCD) 60 be approached with care. In that case grazing by horses was held not to be an agricultural purpose within IHTA 1984 s 115(2). It has been argued that too much emphasis has been placed upon the nature of the horses that grazed the grass (they were not working farm horses) rather than upon whether the main purpose of occupation of the land was to grow the crop of grass for grazing (as opposed, for example, to the purposes of recreational activities connected with the horses that grazed). Thus it is considered that Wheatley was flawed. It is clear that activities connected with the growing of a crop of grass are an agricultural operation; what does not follow automatically is whether the main purpose of occupation is to conduct those agricultural operations. Thus, in the case of Hemens v Whitsbury Farm and Stud Ltd [1987] 1 All ER 430, it was noted by Balcombe LJ that zebras and bison grazing land at a zoo were not an agricultural operation (page 445), though it is equally clear in that example that the land was not occupied for the purposes of agriculture.

The role of the agent

A further question arises as to how far the landowner can contract his husbandry duties to an agent who performs them on his behalf. A landowner should approach the idea of using agents with caution. In cases where the landowner is actively farming other land, and provides only some of his land for seasonal grazing, he will probably be regarded as a farmer on the grass lands, even where he contracts for others to fertilise, weed and seed the land, and allows the grazier to cut the grass. On the other hand, a landowner who only allows his land to be grazed by others would be better to perform these duties himself, lest his occupation of the land be regarded as so minimal that the grazier is regarded as the paramount user and occupier. In McCall the concept of an agent was considered workable provided the landowner conducts some of the activities, mainly the act of fertilising the land, the muck spreading.


About the Author

Supplied by Julie Butler F.C.A. Butler & Co, Bennett House, The Dean, Alresford, Hampshire, SO24 9BH.  Tel: 01962 735544.  Email; j.butler@butler-co.co.uk, Website; www.butler-co.co.uk

Julie Butler F.C.A. is the author of Tax Planning for Farm and Land Diversification (Bloomsbury Professional), Equine Tax Planning ISBN: 0406966540, and Stanley: Taxation of Farmers and Landowners (LexisNexis).



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Article Published/Sorted/Amended on Scopulus 2014-08-08 09:06:33 in Tax Articles

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