Savills has noticed a change in the treatment of land and property by HM Revenue & Customs (HMRC), and expects the situation to get worse over the coming months. ‘With Government borrowings vastly outweighing revenues, the Treasury is seeking every possible way to raise taxes – and landowners are among the first to be hit,’ says director Mike Townsend at this week’s Royal Bath & West Show which begins today (Thursday, May 28).
‘We are already seeing a tightening in the way HMRC is interpreting the rules, with Capital Gains Tax (CGT) and Inheritance Tax allowances – worth £5.7bn a year – coming under intense scrutiny.’
For example, some property owners with more than half a hectare of land or garden are finding they no longer qualified for full Private Residence Exemption, said Mr Townsend. Although the main house was exempt from CGT, anything over 0.5ha of land could be liable to tax at up to 40%.
‘HMRC can agree to extend Private Residence Exemption over a greater area of land, if you can prove it is required for the reasonable enjoyment of the dwelling house. In the past most property went through on the nod, but more of these cases are now being questioned.’
The Government is also attempting to close agricultural relief from Inheritance Tax (IHT), targeting larger houses and bare land alike. ‘Farmers need to be careful to keep an appropriate amount of land with the main house, or it could be seen as ‘too grand’ to qualify for Agricultural Property Relief (APR).’
In the Antrobus court case, the agricultural value of the farmhouse, which is exempt from IHT, was deemed to be just 70% of its market value – a worrying decision for the farming community, says Mr Townsend. ‘We need to watch that District Valuers don’t adopt this as a rule of thumb – it would be wrong to do so, and extremely costly to farming taxpayers because 30% of the house value would not be eligible for APR.”
Land abutting village boundaries and residential properties was also under attack, with District Valuers claiming it had hope value over and above its agricultural value, even where no offers to purchase it had been made. ‘This means the hope value would not attract any APR at all, which is the wrong approach to take,’ believes Mr Townsend.