‘Hidden VAT boost for farmers

A leading agricultural lawyer has praised the Government for clarifying two important issues hidden away in the Budget on Inheritance Tax and VAT for farmers

Sarah Baugh, a partner at MFG Solicitors in Shropshire and head of the firm’s agricultural and rural affairs division, says that if the issues had not been dealt with it could have meant significant costs for the agricultural community.

She said: "Agricultural property relief for inheritance tax was previously restricted to UK property only and the EU had challenged the British Government that this was discriminatory.

"The fear was that the relief would have to be abolished. It has instead been agreed that APR will now apply to all properties situated within the EU and European Economic Area as of April 6 2009.

"The second issue relates to VAT and rent reviews on agricultural holdings.

"Just after the change to the VAT rate came a case known as Mason v Boscawen.

"This appeared to conclude that the change in the VAT rate from 17.5% to 15% meant that where VAT was charged on an Agricultural Holdings Act rent this counted as a rent review.

"As only one rent review is allowed on an Agricultural Holdings Act Tenancy every three years it was feared that this "accidental/statutory" review prevented any further reviews for three years.

"It was also unclear what would happen when the VAT rate is increased again at the end of the year back up to 17.5 %.

"Were the case correct then when the VAT rate goes back up at the end of the year with no further reviews allowed for three years, the industry was uncertain as to whether the Landlord would have been able to recover the increased VAT on rent based on 17.5%.

"There was also uncertainty over how or indeed if a "proper" rent review could be carried out."

Sarah Baugh said that hidden away in the Budget was the statement that following Royal Assent to the Finance Bill changes in the VAT rate or other changes of the VAT status for agricultural land will not be considered rent changes for the purposes of rent review provisions under the Agricultural Holdings Act 1986.

She added: "This therefore restores the legal position to pre-Mason v Boscawen.

"The sooner the Finance Act goes through and the provision is implemented this is, again, a welcome clarification and overturning of an apparently accidental limitation on reviews."