In managing a variety of rural property assets, whether or not run in conjunction with an in hand farming business, every day decisions that need to be made in respect of individual assets can have often unrealised "knock on effects" elsewhere.

A whole farm or whole estate approach seeks to recognise the close interconnection between assets and decisions in order that decisions taken are "in the round" rather than in isolation. A simple example is shown to give you a taste of these inter-relationships and sometimes unforeseen circumstances.

EXAMPLE
Your farm worker is due to retire in 3 years but occupies a house on the farm. He has indicated that he has inherited a house in a local village that he is having renovated and in 12 months he would be prepared to give vacant possession for £10,000 but not a penny less. He wants to continue working for you until he is 65.

DO YOU
Agree to pay him £10,000 and re-let the house on an Assured Shorthold Tenancy at £1,000 per calendar month, thus getting your money back within 12 months and two extra months rent "for free" before you will need the house for a replacement worker. Do you rush to complete the deal? How could the whole farm approach affect such a clear cut opportunity when you get your money back within 12 months, so how could you go wrong? The answer sadly is – you could go wrong very easily, so, instead of rushing into any deal in isolation, you should consider all the potential knock on effects. There could be a number of different ways in which the above deal could affect your position but we have picked three examples.

1. Income Tax You should stop to think about the tax treatment of the £10,000 payment and how (although your tenant may be able to get it tax free for giving up possession of his Principal Private Residence) if you agree the above, you would have to pay it out of capital therefore getting no tax relief on it. Alternatively, you could consider redundancy and calculate his entitlements which come to say £8,940 and you agree an ex-gratia top up of £1,060 and pay him £10,000 redundancy. He gives vacant possession of the property as part of the deal and, as a 40% tax payer, you could get £4,000 tax relief on the redundancy payment so you have a vacant house for £6,000 instead of £10,000.
   DO YOU RUSH TO COMPLETE THE DEAL? – NO
   
   
2. Inheritance and Capital Gains Tax You stop to think about the Inheritance Tax position on the Cottage, particularly if it is presently owned in whole or part by an older member of the family. Consider the opportunity to gift or sell it to the next generation whilst firstly APR (Agricultural Property Relief) applies at the time of the gift (as it is occupied by an agricultural employee) and secondly the capital gains tax liability on the gift is reduced (because the property value is often significantly reduced by the Security of Tenure enjoyed by the tenant). Thirdly, even if there is some capital gain on the gift – if gifted whilst used in the family, business holdover relief can usually be obtained.
   DO YOU RUSH TO COMPLETE THE DEAL? – NO.
   
   
3. Planning Would you like planning for another house on the farm? Bear in mind that once you get vacant possession of this cottage in the yard and let it on an Assured Shorthold Tenancy, you will prejudice your chances of getting planning for another dwelling. Consider the opportunities first and if a case can be made for another dwelling then seek to secure planning for new dwelling first before getting vacant possession of the cottage.
   
   WHAT IF YOU DID RUSH TO COMPLETE THE DEAL?
   The landowner who did not apply the whole farm approach thought he was onto a good thing but he voluntarily paid £4,000 extra income tax and, in his rush to get vacant possession of the Cottage, turned it from an agricultural property with a value of £250,000 into a non agricultural property with a value of £375,000. His elderly father sadly died shortly after he obtained vacant possession of the cottage and his failure to think about other consequences cost him an extra £150,000 in Inheritance Tax. He also missed out on a potential opportunity to obtain planning for a further house with an agricultural tie which would have been ideal for his daughter, who wants to live on the farm but is not an essential farm worker. The following year he buys his daughter a house in the village for £365,000 which provides her with the same accommodation as an agriculturally tied dwelling which could have been provided at a build cost of £135,000. So, the potential cost of the quick decision to accept the farm worker's original offer was:
   
   Income Tax £4,000
   Inheritance Tax £150,000
   Extra house costs for daughter £230,000
   £420,000