Discussion
We've just finished building our "retirement" home on the remnants of a Scottish hill farm. Whereas the original farm was in excess of 2000 acres, most has been planted as commercial forestry and we are left with a little under 20 acres of "garden", a couple of agricultural buildings, and our house.
We plan a "lifestyle" retirement, with the land used for a mixture of self sufficiency (possibly selling off excess produce), grazing other people's animals in rotation with our own crops, rewilding an area for environmental enhancement possibly with some financial gains/further enterprise from this, and a small area already rented out on a commercial basis.
The land is registered as agricultural land with the government agricultural agency, but not with the planning authority. Currently all income (not that there's much at the moment) is simply listed as part of my personal tax return.
I can see several advantages in naming what we have as a farm and running it as such, including rates, CGT, IHT, more creative tax returns, grants for environmental improvements, planning priorities etc but also some disadvantages.
My question is, can we describe a very small, possibly loss making, enterprise such as this "a farm", and is it worth the hassle?
We plan a "lifestyle" retirement, with the land used for a mixture of self sufficiency (possibly selling off excess produce), grazing other people's animals in rotation with our own crops, rewilding an area for environmental enhancement possibly with some financial gains/further enterprise from this, and a small area already rented out on a commercial basis.
The land is registered as agricultural land with the government agricultural agency, but not with the planning authority. Currently all income (not that there's much at the moment) is simply listed as part of my personal tax return.
I can see several advantages in naming what we have as a farm and running it as such, including rates, CGT, IHT, more creative tax returns, grants for environmental improvements, planning priorities etc but also some disadvantages.
My question is, can we describe a very small, possibly loss making, enterprise such as this "a farm", and is it worth the hassle?
https://www.fas.scot/new-entrants/getting-started/...
An ex colleague has a croft in Shetland, did ok out if it with plenty subsidies from the gubbrrment
An ex colleague has a croft in Shetland, did ok out if it with plenty subsidies from the gubbrrment
You can call it a farm, but expect that you might need to demonstrate some proper agricultural activity if you want to claim any tax breaks at any point.
If it’s like England, subsidies/incentives on 20ac won’t be worth bothering with (or perhaps even available for much). There’s been quite a shift to large scale projects and things needing long term commitment. However, from memory the more permissive PD regime kicks in at about 12ac (but again may be different in Scotland?).
Some of my in laws have a similar sized setup and they don’t bother with anything from the RPA but make a point of having sheep on the land annually. The treatment of theirs is probably helped by an agricultural occupancy clause.
If it’s like England, subsidies/incentives on 20ac won’t be worth bothering with (or perhaps even available for much). There’s been quite a shift to large scale projects and things needing long term commitment. However, from memory the more permissive PD regime kicks in at about 12ac (but again may be different in Scotland?).
Some of my in laws have a similar sized setup and they don’t bother with anything from the RPA but make a point of having sheep on the land annually. The treatment of theirs is probably helped by an agricultural occupancy clause.
If you run it as a farm then all of the repairs, equipment etc will be tax deductible.
It doesn't really matter whether it makes a loss or not as long as there is some income.
I ran a small side-business for a few years - it had a reasonable income but always made a loss. The loss reduced the income tax bill from my primary job.
Talk to your accountant, but be careful about how you phrase what you are saying to him/her. Instead of "I want to subsidise my lifestyle and pay for all my maintenance and machinery by running my land as a loss-making business" say "I want to run my smallholding as a business but I'm worried that it will never make a profit - would that be an issue?".
It doesn't really matter whether it makes a loss or not as long as there is some income.
I ran a small side-business for a few years - it had a reasonable income but always made a loss. The loss reduced the income tax bill from my primary job.
Talk to your accountant, but be careful about how you phrase what you are saying to him/her. Instead of "I want to subsidise my lifestyle and pay for all my maintenance and machinery by running my land as a loss-making business" say "I want to run my smallholding as a business but I'm worried that it will never make a profit - would that be an issue?".
What's needed is proper, paid advice from Scottish professional advisers.
The basic UK position is that farming is one form of trading and to qualify as trading an enterprise needs to be conducted with a view to making a profit. The chances of a holiday/second/retirement home qualifying as "trading" seem somewhat remote, but it's all a matter of definition and persuasion.
I would have thought the chances of any 20 acre farm achieving profit must be very small indeed, unless the whole thing is intensive farming in glass houses or something like that.
A hobby is a hobby and trading is trading. HMRC (or whoever their friends and relations may be in Scotland) are very familiar with the difference between the two. They do not like businesses which are consistently loss-making while the proprietor is busy offsetting everything in sight as a business expense. If you can't tick the income tax boxes I doubt you'll have a prayer of ticking the IHT box.
All of which comes back to paid professional advice from people who know the local rules.
The basic UK position is that farming is one form of trading and to qualify as trading an enterprise needs to be conducted with a view to making a profit. The chances of a holiday/second/retirement home qualifying as "trading" seem somewhat remote, but it's all a matter of definition and persuasion.
I would have thought the chances of any 20 acre farm achieving profit must be very small indeed, unless the whole thing is intensive farming in glass houses or something like that.
A hobby is a hobby and trading is trading. HMRC (or whoever their friends and relations may be in Scotland) are very familiar with the difference between the two. They do not like businesses which are consistently loss-making while the proprietor is busy offsetting everything in sight as a business expense. If you can't tick the income tax boxes I doubt you'll have a prayer of ticking the IHT box.
All of which comes back to paid professional advice from people who know the local rules.
this is my username said:
It doesn't really matter whether it makes a loss or not as long as there is some income.
I ran a small side-business for a few years - it had a reasonable income but always made a loss. The loss reduced the income tax bill from my primary job.
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How does that work?I ran a small side-business for a few years - it had a reasonable income but always made a loss. The loss reduced the income tax bill from my primary job.
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