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Land registration as a tax planning tool

A large amount of farmland in the UK is unregistered (ie, not registered with the Land Registry). This can often be the cause of problems in farming dispute and tax planning cases. With regard to the latter, the question that often has to be asked is whether the land partnership property or not. Such a question has significant implications for business property relief (BPR) for IHT. Partnership property can achieve 100% BPR whereas property held outside the partnership only achieves 50%.

It is strong strategy that land registration will lead to a well-drafted partnership agreement with full tax planning in relation to it.

Solving the problem of who owns the farm

It is fair to say that in practice, in a large number of farm probates and farm sales, there has been an initial conundrum to solve: who owns what land? The problems are made worse because many farmers trade as a partnership but do not have a partnership agreement. Farmers are often reluctant to deal with the time, dedication and expense to create such an agreement – but do realise the need for the land to be registered. Tax advisers often find there is lack of clarity on ownership, which of course is a necessity for tax planning, and the first registration of the land can help with the identification process.

To encourage clients to pay the small price for voluntary first registration and convert a bundle of unregistered deeds and conveyance documents into an agreed position within the partnership and the family is a positive tax planning tool. Once ownership is agreed the tax planning can be approached in earnest. To carry out tax planning with the wrong ownership details can obviously waste time, money and expectations.

Tax planning through the Land Registry title

For farms that are already registered, it could be that there are a number of titles. All the land probably represents a number of separate assets and it seems sensible to regard each Land Registry title as a separate asset for tax planning purposes. It is necessary, therefore, to review the use of that asset. For example, if the land under one title has been used mainly for private horses then strictly no IHT relief is allowed on the area associated with that title. However, if the land has been used for business purposes then full IHT relief will be available. An important tax planning strategy is to put the private use on one legal title and to consider the surrender of that to the excepted asset rules on that title, so that the private use evidence does not jeopardise relief on the other legal titles.

The key tax planning point is to have strong IHT planning before death and a full understanding of the nature of the private use together with the exact ownership, so that the farm is structured to achieve full or maximum IHT reliefs while enabling full and accurate disclosure. There is room for tax planning but trying to ‘hide’ the private usage on death is essentially fraud. The IHT400 form is a statutory declaration by the executor as to the facts contained therein and must be taken seriously.

Contributed by Julie Butler, Butler & Co

TAXline February 2019