As income from farming continues to decline, farmers are moving towards a more diversified business. In this blog, our property tax advisors in London explore the tax implications of diversifying farms into on-farm commercial ventures. Read on to learn more about them.
Letting of Farm Property – Tax Implications
One of the most common practices seen among the farmers is letting their spare farm properties. But doing so triggers a valid question that whether such activity is tantamount to an investment business and, if yes, what will be tax implications in the future.
Well, the rules in the cases mentioned above are pretty straightforward. If you are letting spare farm property on a short-term basis, it does not constitute an investment business and affects your farming status.
But, if you are letting farming property on a medium or long-term basis, then doing so constitutes an investment business. In this case, there will be two tax implications:
- Income generated from letting property on a medium or long-term basis is treated as income from land instead of separate trade.
- VAT Implications: The general rule is that income emanating from renting farmlands and building is an exempt supply for VAT purposes. If the whole farming land is rented out, then it will lead you towards VAT deregistration (provided that the farmer’s only source of income is rental income). However, if some part of the farmland is rented out and the rest isn’t, this will lead to partial exemption and result in the business being partially exempt from overall business.
Glamping and Camping
The case of glamping and camping is complicated as it leads to a question of whether to treat it as income from land or consider it a trading activity [as it is clearly not income from the land]. Fortunately or unfortunately, there is no straightforward answer but two possibilities:
- There’s a possibility that glamping is a B2B business trade activity.
- There’s also the possibility that glamping merely is income from land and not an actual trade activity at all.
As far as VAT matters are concerned, farmers must charge VAT as camping is standard-rated.
Furnished Holiday Lets
If your property qualifies as Furnished Holiday Let, you are entitled to small business rate relief and capital gains tax relief. Likewise, furnished holiday lets are standard rated for VAT.
Inheritance tax is the downside of this diversification. The trade-off, in this case, is loss of long-term inheritance-tax efficiency as HMRC considers furnished holiday lets as investment properties under Inheritance Tax Act 1984.
Besides, there are other long-term risks, too.
Get Free-15 Advice from Tax Experts
If you are mulling over diversifying your farm business, remember that you should never overlook long-term disadvantages while going for short-term benefits. Therefore, it is always a good idea to seek help from top-rated tax advisors at our firm.
IBISS & CO is a reliable chartered accountant firm in London offering free initial 15-Minute consultation. We have helped clients save hundreds of thousands of hard-earned pounds legally. Whether you need personal tax advisors or property tax consultants, we will be more than happy to help you! Contact us to book an appointment.
