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New Permitted Development Rules - Tax Overview


Julie Butler - Expert Author

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26 June 2014

Agriculture Property Relief (APR) for inheritance tax (IHT) is restricted to Agricultural Value (AV). Any element of market above AV needs to be protected by Business Property Relief (BPR). With the current changes to planning rules for agricultural buildings it can be argued that all agricultural buildings now have potential development value and this could come with an increased IHT bill for farmers who cannot secure BPR.

The tax considerations arise from publication of the government’s long-awaited changes to the Town and Country Planning (General Permitted Development) Order in 2014, which allows the conversion of up to three dwellings with a maximum combined floor area of 450sq m. These new “PD” rules open lots of property development opportunities for landowning farmers with redundant buildings. However, there are a number of qualifying criteria within the new order and one of the most important is that buildings that are proposed for conversion to dwellings should have been in agricultural use on 20 March 2013. An essential criteria for farmers wishing to take advantage of the relaxed planning permission rules will be ensuring the Local Planning Authority (LPA) do not have an opportunity to say that the building is not in agricultural use and therefore deny qualification. Such guidance may sound over simplistic, but any buildings which are in, for example, equestrian use or let out for storage or other non-agricultural uses on 20 March 2013 will not qualify for the new “PD” rules. In addition, the rules do not apply to buildings in areas of outstanding natural beauty (AONB) nor located in National Parks.

Tax Implications

Farming families who have no intention to develop buildings could possibly be caught for extra IHT payable as a result of these changes, ie there could be extra IHT where the barn only qualifies for APR not BPR. For farmers wanting to take advantage of the new planning rules, there will be a need to ascertain exactly how the property is owned. As most farming families trade as a partnership, the task will be of ascertaining whether the property is owned inside or outside the partnership. For non-farming advisers this might sound obvious but there can be huge confusion in the farming community. Often if Capital Gains Tax (CGT) Entrepreneurs’ Relief (ER) will be needed on disposals there will be need to consider the Associated Disposal rule for properties outside the partnership.

Planning permission for development potential is an area that advisers will not be able to ignore in 2014 and the years ahead. The positives are that in reviewing the consideration for potential development there could be solutions to other farming tax problems, eg ensuring there is an up-to-date Partnership Agreement, and that farming family Wills have been reviewed.

Principal Private Residence Relief (PPR)

One obvious benefit to the farming family will be the increase in the opportunity for dwellings resulting from the PD rules. Such potential development could lead to the selling of the main farmhouse and achieving a “tax free” gain on disposal using the principal private residence relief (PPR). Other advantages are that the older generation will be able to ‘downsize’ to a property that will suit their needs in the ‘twilight years’.  PPR will undoubtedly prove to be a useful tax planning tool for the farming community in the years ahead as advantage is taken of increased residential development opportunities.

Where there are concerns over the large farmhouse and the eligibility thereof for APR, eg queries over the size of the farmhouse not being of a character appropriate to the land, the ability of moving to a smaller more functional farmhouse could have IHT benefits. There is no doubt that PPR could help release funds to the family in a tax efficient manner.

The need to join up the fundamental tax planning with possible planning permission opportunities

Clearly with all the potential for increased development opportunity the ‘property portfolio’ of any farm needs to be reviewed. This is not restricted to what currently counts as a dwelling but what could count as a dwelling in the future. There is a need for a review of farmhouse eligibility for APR and this should be expanded to a total review of properties for ownership/occupation criteria to meet the demands of potential APR and PPR. Such review is of particular importance post Hanson – Revenue & Customs Commissioners v Joseph Nicholas Hanson (Trustee of William Hanson 1957 Settlement) [2013] UKUT 0224 (TCC) when the nexus for character appropriate was decided to common occupation not common ownership.

There is much scope and need for the farming community to review all planning permission and tax planning opportunities around the new PD rules.

About the Author

Supplied by Julie Butler F.C.A. Butler & Co, Bennett House, The Dean, Alresford, Hampshire, SO24 9BH.  Tel: 01962 735544.  Email;, Website;

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 2014-08-21 14:36:56 in Tax Articles

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