BELFAST BRIEFING:A court ruling changing tax liability on land let in conacre could see huge rises in inheritance tax

POLITICAL LEADERS in the North are squaring up for a fight with the UK treasury over a new policy that could leave some farming families facing a potential £40 million (€44.25 billion) tax liability.

Soaring inheritance tax bills could force farming families to sell land that has been handed down through generations and destroy rural communities across the North. That is the stark warning from local business, political and farming leaders.

They claim a recent move by UK revenue and customs to view agricultural land differently for tax purposes could prove to be devastating for the economy.

About one-third, or 300,000 acres, of farmland in Northern Ireland is let under conacre, a system that is not in operation anywhere else in the UK. Under the system, farmers can rent out their land to another party for a certain period of time.

Historically, the UK tax authorities considered this to be simply part of the farming process, enabling the farmer to maintain his land in any particular season. But a recent legal case set a new precedent for how the tax authorities can deal with land let under conacre.

In the past, farming families could rest easy in the knowledge that any land let under conacre could be passed to the next generation generally tax-free.

Traditionally, conacre land was eligible for agricultural property relief (APR) on the agricultural value of the land and business property relief (BPR) on the developmental value or “hope value” of the land, ie what it could be worth.

When both APR and BPR were taken into consideration it usually meant that families did not have an inheritance tax bill to worry about. But a ruling in a recent case involving Eileen McClean, who had owned 33 acres of land in Co Antrim which was let under conacre, has dramatically changed the landscape.

The ruling found in favour of an argument by the UK revenue and customs that because Ms McClean was not actively farming and because the land was being let out repeatedly, it could be seen as an investment business.

At the time of her death in 1999, the development value of her land was estimated to be £5.8 million while the agricultural value was judged to be £165,000. The net result of the decision in favour of the UK Revenue and Customs was an additional inheritance tax bill of £2.4 million for Ms McClean’s family.

According to Nigel Anketell, an estate planning specialist with PricewaterhouseCoopers (PwC), the result means many more farming families in the North may have to deal with unexpected sizeable tax bills shortly.

“The value of some farms for inheritance tax purposes could go from nil to millions overnight, with every acre of land let in conacre liable for inheritance tax at rates of up to 40 per cent,” Anketell has warned.

PwC estimates that the UK revenue and customs could currently be pursuing about 100 cases in the North following the McClean ruling. It says that while the cases are not in the public domain, it is reasonable to assume that the land in question has a “hope” value in each case of at least £1 million.

These lands would then be liable for inheritance tax at 40 per cent which, according to PwC, could in theory trigger a tax liability of £40 million.

The big fear among farming communities is that they could be forced to sell land that has been in their families for generations just to pay a tax bill.

In the current economic climate, land sales are not exactly flourishing so securing the best price for land, which would be irreplaceable to families, could be difficult.

A large of number of farms being placed on the market could also cause a negative knock-on effect for local property prices and further weaken the economy.

In a rare show of solidarity, political representatives from all parties in Northern Ireland have voiced their concern about the implication of the McClean ruling on the farming community.

Minister for Agriculture Michelle Gildernew and Minister for Finance Sammy Wilson met Stephen Timms, the financial secretary to the treasury, last week to convey that concern.

In a recent debate in the Northern Ireland Assembly, the DUP’s Ian Paisley jnr said the House would reject the tax because it would “devastate farming and tax planning for the farming community”.

“It will prevent future farming generations being able to inherit, plough, sow and farm the land in the way that their fathers and forefathers did,” Paisley added.

Patsy McGlone, the SDLP’s assembly member for Mid-Ulster, a predominately rural area, said the policy was already “causing difficulty, hurt and harm”.

“I was reared on a small farm of 22 acres; my father was a part-time farmer who also owned a garage. When I think of a few of those 22 acres and the liability that the rest of us would have been left with when my father, God rest him, passed on, I find it incredible.

“It is incredible for the small-farming community and the generations who may inherit and who may wish to farm. Instead of being able to farm, they would be left with a huge tax liability round their necks. The situation is impossible,” McGlone said.