The demand for new homes and the call for development sites provide a real opportunity for landowners with suitably placed land. Developers and builders are very active and options and land promotion agreements abound in the hope of successful planning permission. It goes without saying that such agreements require careful legal scrutiny to check the “devil in the detail”.
There has also been a planning relaxation for the conversion of agricultural buildings for dwellings or certain commercial uses subject to meeting certain qualifying conditions.
Whilst much depends on the availability of planning permission, it is important not to lose sight of overall succession and estate planning in the context of these windfall opportunities.
Immediate planning will be to ensure that entrepreneurs’ relief (which reduces the Capital Gains Tax (CGT) rate) covers the sale proceeds or that roll over relief is available if the gain is to be reinvested in other agricultural land. Both reliefs involve time limits. Entrepreneurs’ relief in particular may require certain forward planning to ensure that the ownership/business structure is correct and may involve entering into or updating a partnership agreement. Thought will also be required as to whether land is owned by the partnership or personally by the partners.
The Inheritance Tax (IHT) position should also be considered in case there is an untimely death before the completion of any sale. For IHT, 100% agricultural property relief is only available on the agricultural value of the land and not on development or hope value. However, correct ownership structuring can mean that both the agricultural and development values are covered by 100% business property relief.
For land with longer term development potential, it would be worthwhile for IHT savings to gift the land well before any planning value is optimised so that eventual sale proceeds are in the hands of the next generation.
The added value to an estate upon the grant of planning permission, or the receipt of the sale proceeds, may also mean wills need to be revisited and may provide an opportunity to provide for non-farming members of the family. Also, sale proceeds, which are not to be reinvested in land or the business, will have been converted from assets qualifying for IHT relief to non qualifying assets and IHT mitigation should be addressed.
If the development involves the conversion and retention of farm buildings for holiday accommodation it is also important to plan. The recent case of Green v HMRC (in line with HMRC v Pawson) suggests that those with holiday lets will have an uphill struggle to prove eligibility for relief unless additional services provided are those akin to a bed and breakfast or hotel business. It may, however, be possible to obtain relief under principles in the Earl of Balfour case (Brander v HMRC) that there is one composite farming business which includes let properties.
Suitably experienced legal, accountancy and land agent professionals should work together to provide tailored solutions so that development opportunities are maximised, development agreements examined carefully, partnership/company structures updated so that entrepreneurs’ relief is achieved, inheritance tax mitigated, succession planning brought up to date and pre or post nuptial agreements considered to protect family assets.