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Jointly owned farmland.

Income and expenses on husband's return as self-employed income

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Morning All. I normally stay away from farming accounts as out of my comfort zone but have a husband and wife who jointly own some farmland. The husband has registered as self-employed and all income (basic payment scheme and farmer rent) and expenses have been declared on his return by his accountants. I act for the wife only.

Does anyone see any potential issues with this apart from the wife not being eligible for BADR on any jointly owned assets that would normally qualify? I have also been told that there will be significant expenses incurred in future years.

Many TIA.

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By Paul Crowley
11th Nov 2021 10:59

Yes
If income from the land is not declared by wife then HMRC could see it as more than careless
And a few years down the line Wife owes tax and too late for husband to ammend the returns
BUT we have no idea if other accountants know land is joint or whether a piece of paper exists changing beneficial ownership
If it exists, wife should have signed

Thanks (2)
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By JD
11th Nov 2021 11:54

Is the farmland on the the balance sheet of the farming business accounts. If not, is there perhaps a simple licence for use between the joint owners and the farming business. Either way, in addition to Pauls income tax point, the availability of APR & BPR can be dependent on both the ownership and occupation of the farmland.

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By Tax Dragon
11th Nov 2021 12:42

"Some farmland"?

This may sound silly, but you haven't actually said... what does H do? This is much more SteveHa's area of expertise than mine, but owning a bit of land and getting BPS doesn't sound like any great shakes. Does "farmer rent" mean the land is tenanted? (? Grazing rents?)

So to Paul's point... is it income from land, or is it trading income?
To JD's point... (based on no great shakes) BPR doesn't sound relevant, H+W qualify equally for APR
To your point... would BADR be relevant even if the income was shared?

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Replying to Tax Dragon:
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By More unearned luck
11th Nov 2021 13:21

I agree. But grass keep might not get clients over the BPR line (relevant if the land is worth more than its ag value). See McCall as PR of Mclean.

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Replying to More unearned luck:
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By Tax Dragon
11th Nov 2021 15:51

Yes, "[not] relevant" was a perhaps a poor choice of phrase; it's a shorthand (for anything akin to "the conditions for XXX are not met") that I realise I am prone to over-/mis- use.

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Scooby
By gainsborough
11th Nov 2021 13:39

Many thanks everyone for your responses.

So, the land was bought in joint names during 2020/21 - a farmer rents the land for his sheep and Government rural grants are also received. There are plans to eventually develop buildings on the premises to rent out as FHLs/stables.

Looking at my emails last year, I told the client that rental income received would be split jointly between them as they owned the property jointly and advised them to take specialist advice (especially VAT/developing property), saying I could only continue to act for the wife if the specialist accountants took responsibilty for the farm affairs and sent me the details to include on her return (I know when I am outside my comfort zone!). It's only when I received the info for the wife that self-employment for the husband has been mentioned.

My views, I think, agree with yours:
- Rental income should be split jointly unless there has been a beneficial election to state otherwise.
- Self-employment only relevant if the husband is farming on his own account.
- APR probably no difference as 7 years by tenanted farmer needed in either case.

I think I am going to try and persuade this client again to take specialist advice - further thoughts very welcome!

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Replying to gainsborough:
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By Tax Dragon
11th Nov 2021 15:57

It does sound a bit investmenty. (In which case, why isn't W a party to it?) But might it constitute a share farming arrangement? (Although, for the same reason, wouldn't W again be involved? [Steve do correct me if not.])

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Replying to Tax Dragon:
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By Paul Crowley
11th Nov 2021 17:50

It does sound a bit investmenty
Sounds a bit that way to me

Farmer pays rent to H, who is also a farmer on the same land?

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Replying to Paul Crowley:
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By Tax Dragon
12th Nov 2021 02:56

"Rent" was OP's word. I bet it's (supposed to be) SFA. Though, given plans to convert to FHL and stables, not quite sure why you'd bother. So my bet is small. (Well, as I'm not a betting dragon, it's also fictional. But you get my point.)

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Scooby
By gainsborough
11th Nov 2021 21:49

Sounds investmenty to me too!

I haven't seen anything specific from the husband to say that he is farming, so I will ask.

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Replying to gainsborough:
By SteveHa
12th Nov 2021 08:49

It sounds very investmenty to me, though as has as been alluded to, the devil will be in the detail and dependant on whether or not H is actually farming.

If he is, farming tends to incur losses for a number of years before turning a profit (climate fluctuations, economical fluctuations etc. can all have an effect), and in those cases the accounts and tax preparer should be familiar with unique niceties like farmer's averaging (2 year and 5 year). In this case, if there is a farming trade and if W should have a share of the profits, then responsibility for averaging will be yours in respect of her taxable profits.

Based on previous responses, I am leaning to a rental business, though.

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Replying to SteveHa:
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By Tax Dragon
12th Nov 2021 10:26

Worth seeing the agreement between H and sheep farmer. Though as neither is a client (and W apparently isn't a party to the agreement) I'm not sure how you'd justify asking. (But there must [also] be an agreement between H+W you could ask about... but it won't be in writing and W probably won't know what she's agreed. Heyho.)

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By JD
12th Nov 2021 18:06

I believe that you need to reach the threshold of being the farmer, in order to be able to claim under the BPS support scheme.

As part of many short term grass keep arrangements, the farmer (owner of the land) retains control over how the land is used and will go beyond the general upkeep of fences, gates and the like, to include topping of pastures, spreading fertiliser (so the growing of the crop of grass) and may/likely to have some involvement in the day to day management of the livestock (even if it is just to turn the sheep back up the right way and see if they are still alive).

As noted by others you could do with seeing the agreement (if one exists) before saying it is pure rental.

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Scooby
By gainsborough
13th Nov 2021 09:47

Thanks again everyone - very helpful and much appreciated.

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Morph
By kevinringer
15th Nov 2021 13:11

Here in Wales you have to be in control of the land to qualify for basic payment scheme. If the land was let (as in landlord and tenant, not as in grazing) then I'd expect the tenant to claim the basic payment. As OP's client is claiming the basic payment it suggests the "let" is in fact a grazing licence. If OP's client is indeed letting on a grazing licence, it could well be regarded as husbandry, see BIM55065. All too often, when the facts are looked into, it isn't grazing and is more akin to a letting. It depends in part on who is responsible for fertiliser, seeding, weed control, maintenance of hedges and fences etc.

If it is rent, the H+W are joint owners and income should be declared by both of them PIM1030.

If it is genuinely grazing, then it could be argued H is carrying out the trade and not W therefore is a sole trader. But because of reasons already stated around BADR, BPR etc, why aren't H+W trading in partnership? There could be a good reason: we don't know about H and W's other income.

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Replying to kevinringer:
Scooby
By gainsborough
17th Nov 2021 08:14

Thanks @Kevin - very helpful and I will check out the manual reference you kindly provided.

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