Love them or hate them – it seems that wind turbines are here to stay.  The Farmers Guardian recently reported that wind power expert Mark Newton believes every farm in the UK will have a wind turbine in five years’ time.  Despite much opposition over recent years the wind power industry is growing rapidly and more and more farmers are looking at the opportunities that turbines can create.

In these difficult times the hope of additional revenue is certainly an attraction.  However, before farmers leap in there are long terms considerations that should not be overlooked. 

Inheritance Tax

Farmers are in a very favourable position so far as Inheritance Tax (IHT) is concerned.  In most cases there will be Agricultural Property Relief (APR) of 100% for farm land and farm buildings.  Given that the existing rate of IHT is 40% that can be quite a saving.  However, there are conditions (as there always is with the Revenue) and when farmers diversify they run the risk that they will not meet the conditions for the relief.  Early tax advice is essential when any plans to diversify are considered.

Leasing v Owner developing

Land let on a Farm Business Tenancy will continue to attract 100% APR for the land owner but land let to a turbine developer will not – this is not an agricultural purpose.  The natural next argument when we consider diversification is “will Business Property Relief (BPR) be available instead?” This is by no means an easy question to answer.  As a stand-alone project the leasing of land for such a purpose would not be eligible for relief as it would be seen as an “investment business”.  However, we are not looking at a stand-alone project here as the farmer is engaged in other trading activity.  Much will depend on the extent of the trading activity as opposed to investment business activity.  This question was considered in the case of Farmer v IRC [1999] where the farmer had diversified into letting properties on the farm.  In that case relief was allowed on the basis that farming was the main function.  Care must be taken not to “tip the balance”.  Key features are; operating both sides of the business as one unit; having one set of accounts covering all activities and ensuring that the business continued to consist “mainly of farming”.

The other option of course is developing a turbine yourself in which case the argument would be that this was itself a trading business and BPR could then be available.

Impact on the Farmhouse

Whatever action is taken it is always worth considering what the impact will be on the farmhouse itself.  APR is available for farmhouses “which are of a character appropriate” to the farmland and “occupied for the purposes of agriculture”.  The more farmers become involved in non-agricultural activity the more the Revenue may seek to argue that the farmhouse is not eligible for relief.

Only time will tell whether farmers will find themselves in difficulty in this area and it may be that from a policy standpoint the Revenue will not want to be coming down too hard on farmers looking to increase the amount of green energy the country produces.  Who knows?  Watch this space.

For more information on this topic or to have informal discussion on Inheritance Tax please contact Allison Kent on 01792 525434 or email allison.kent@jcpsolicitors.co.uk.